Abstract

The study employs multivariate macro-econometric techniques in assessing the credibility of the Malawi Growth and Development Strategy’s (MGDS) implementation plan. The multivariate approach looks at the dynamic relationships over the study period of four macroeconomic variables. Based on the Mundell-Fleming three-sector model, a structural vector autoregressive technique is employed using ‘identifying restrictions’ developed by Blanchard and Quah. This approach relies on the data generating process to forecast the selected variables during the MGDS implementation period (2006Q1-2011Q4). The SVAR model is used to identify the main macroeconomic factors behind the fluctuations in all six variables except inflation and real effective exchange rate over the 1980Q1-2005Q4 period. The method applied by the latter projections compares benchmark forecasts generated by the IMF financial programming technique which considers consistency of macroeconomic flows in the accounting framework of real and financial variables. The dynamic relationships generated from the SVAR model shows consistency with the general movements of variables in the Mundell-Fleming framework. The results show that it is important for government to consider people’s perceptions in order to effectively formulate optimal policy rules and regulations. The results also show that forecasts generated by the SVAR methodology employed on real GDP, government budget deficit, Treasury bill rate and the trade balance are consistent with those generated by the IMF financial programming technique. The forecast results also confirm credibility of the government policies that would be followed during the MGDS implementation period.

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School	: School of Law, Economics and Government
Issued Date	: 2007

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