Poverty alleviation as a central objective of developing country macroeconomic policy

This paper examines how poverty alleviation can be incorporated as a policy objective in developing country macroeconomic models, analogous to the unemployment objective in industrial country applications. Three elements are involved: selection of the appropriate poverty measure, establishment of linkages with the rest of the macro model, and assessment of how the policy mix is affected. The IMF monetary model, which underpins its widespread adjustment programs, is reworked to include these elements. Some proposals are made to facilitate compliance with the balance of payments constraint, while restraining the extent to which the incidence of poverty rises from stabilization induced causes.