THE POTENCY OF STABILIZATION POLICY IN DEVELOPING-ECONOMIES - KENYA, TANZANIA, AND UGANDA

In this paper we investigate the comparative potency of stabilization policy instruments in Kenya, Tanzania, and Uganda. We draw on a small, eclectic macroeconomic model that includes features distinctive to de veloping economies and is sufficiently flexible to be capable of yield ing either ''Structuralist'' or ''Orthodox'' outcomes. The model is es timated jointly on Kenya, Tanzania, and Uganda in a novel application of Zellner's estimation procedure. Among the findings of interest are that the data are able to accept a number of common cross-country elas ticity restrictions, suggesting that these three countries share some elements of a common economic structure. However, system-wide multipli ers, generated by simulation experiments, uncover different properties of the model across the three countries. This implies that there are important cross-country differences that must be taken into account in the design of stabilization policy. On the Structuralist-Orthodox con troversy we find that the parameters.of all three countries' aggregate demand schedules are broadly good news for the Orthodox position, whe reas the aggregate supply schedules are generally bad news for Orthodo x policies, as all three economies appear vulnerable to supply-side in flation generated by policies such as monetary contraction, an interes t rate reform, or a competitive depreciation of the exchange rate. Ove rall, the results imply that Orthodox policies can only be applied to these economies with considerable caution.