Macroeconomics is the branch of economics that deals with the overall functioning of the economy. Macroeconomic policies are critical in shaping the landscape within which factor markets (such as labor and capital) and product markets (such as shoes, cars, or bread) operate. They have a critical influence on decisions by companies to produce, hire or fire workers, or export and import goods, for example. They also determine household decisions to consume, save, and borrow, and government decisions to invest in infrastructure, education and many other aspects of development.
Macroeconomic policies include taxes, government spending and borrowing, exchange rate determinants, and monetary and credit rules. The primary goal of effective macroeconomic policies is to reduce uncertainty and risk in economic decision-making. A stable macroeconomic environment enhances prospects for growth and improved living standards. But stability is not the only concern: these policies also have an important impact on how income is distributed across economic classes and across generations. The World Bank Group’s primary goals are to reduce poverty and ensure shared prosperity, and its macroeconomists are no exception. They work to help policymakers better understand and manage macroeconomic policy so that it works to reduce the number of people living in poverty and to increase the number of people who can share in the benefits of rising incomes.
While governments’ choices on macroeconomic and fiscal policies are already complicated, they gain a significant layer of complexity in countries facing fragility and conflict. Over the past decade the world has witnessed a resurgence of conflict across a variety of countries, including both low-income and middle-income countries. In some contexts, macroeconomics can be considered a driver or enabler of conflict. This is the case in societies where the distribution of natural resource rents is contested and at the root of conflict. In some cases, macroeconomic policymakers are working to achieve the goals of growth, poverty reduction and shared prosperity in an environment constrained by fragility and conflict. The efficacy of certain approaches will depend on the challenges facing a country at the different stages of conflict: in contexts of fragility, during conflict, and in a post-conflict environment (stabilization, reconstruction, kick-starting growth, building resilience).These macroeconomic policy choices will also vary based on countries’ income levels, endowments of human and physical capital as well as natural resources, not to mention the state’s institutional capabilities.