Macro-Finance: Application of Financial Economic Theory for Implementing Macroeconomic Policy

UNCP Author/Contributor (non-UNCP co-authors, if there are any, appear on document)
Dr. Mohammad Ashraf, Professor of Economics (Creator)
The University of North Carolina at Pembroke (UNCP )
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Abstract: We define macrofinance as the application of traditional financial economic theory to the macro-economy postulating that macroeconomic activity results from aggregate effects of all domestic private and public saving, investment, net international trade and consumption decisions. We suggest that a single economic policy objective should be the maximization of the composite wealth of the country’s stakeholders, the country’s total population. This national welfare objective is analogous to the financial economic objective of maximizing shareholders' wealth in the case for a single firm. Maximizing owners’ wealth for a single firm involves the discounting of future cash flows (usually dividends) accruing to the firm’s shareholders. For a nation’s economic welfare, a parallel concept may be operationalized by maximizing the present value of a country’s long-run, sustainable, real standard of living, i.e., maximizing discounted future cash flows associated with the consumption component of GDP. We apply the macrofinance methodology to identify characteristics of macroeconomic policy, which may be less transparent given current objectives of economic policy.

Additional Information

Language: English
Date: 2002
Macro-Finance, Economic Theory, Macroeconomic Policy, Economic Policy

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