Finance, Society and the Environment
Edited by Sabri Boubaker, Douglas Cumming and Duc K. Nguyen
chapter 7: Sovereign Wealth Funds and macroeconomic stability: before and after their establishment
The establishment of Sovereign Wealth Funds (SWFs) has gained more global popularity in recent decades because many countries view the fund as a vehicle for macroeconomic stability. But after several years of operation, the relationship between SWFs and macroeconomic stability seems unclear. This chapter examines the nexus between SWFs and macroeconomic stability in countries that operate SWFs. It analyses the performances of gross domestic product (GDP) growth rates, inflation rates, exchange rates, interest rates and fiscal deficits relative to GDP and government debts relative to GDP before and after the establishment of SWFs. These variables are used to determine the macroeconomic stability of a country according to the Maastricht Criteria. It was found that the establishment and operation of SWFs concurred with the reduction in inflation and interest rates as well as deficits and debts to GDP ratios in most countries. One implication of this study is that SWFs that are integrated into a country’s fiscal policy can be utilized for macroeconomic stability. The chapter recommends the operation of SWFs with definitive objectives, effective management, accountability and transparency for macroeconomic stabilization.
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