Macroeconomic stability and economic resilience in small states : the role of macroeconomic policies

Abstract

This chapter examines the role of macroeconomic stability in building economic resilience and considers which public policies are best suited towards this end, especially in small states. The paper argues that small states have difficulty achieving stable economic growth principally because they are highly exposed to external shocks. In this regard, economic resilience is an important and useful concept as it relates to the capacity of small states to respond to such shocks. The main argument put forward in this chapter is that fiscal deficits must be prudently managed to ensure that the path for public debt is sustainable; otherwise other macroeconomic policies will be undermined.