Firms need to take a holistic view of the macro economic environment in a recession
how is the government?
Firms are constantly making decisions about their near future. In developing economies in particular, the value of imports, like a piece of equipment, a computer or new software for example, depends on the exchange rate. If the government has a monetary policy that is dedicated to stabilise its currency and has conservative fiscal policy, firms will have a relatively clear view of the investment horizon. In that case choosing an array of safe assets with an acceptable return is not that risky.
For instance, countries like Argentina have been able to absorb the shock better than its big neighbours like Brazil or some other countries because its monetary policy stabilises the peso (Argentine currency) to the dollar around a predicable market value. It imposes restrictive capital controls and has a conservative fiscal policy to support its stabilisation plan. It is true that its credit market has felt the impact, but it was not well developed before the crisis. So, one can say that the economic activities in Argentina were not significantly affected by the global crisis. Moreover, because the government taxes the country’s agricultural exports, necessities like beef and grains, revenues have remained stable.
In countries where the government has a floating exchange rate regime and where financial capital can flow freely, relative prices tend to behave erratically during a crisis because fear affects the value of currencies, and thus prices, in unexpected magnitudes. In these cases firms may have to consider relocating to more stable economic environments or to invest in safer assets until the crisis subsides to levels at which the future is more predicable.
As a result, a good understanding of the country’s macroeconomic policy may prove to be important during the process of analysis and planning because successful planning depends in part on the ability of the managers to read the future. And forecasting is more an art than a science. The analyst pieces together different parts of the puzzle to construct a tapestry about the future. The process requires not only formal knowledge of particular production processes, consume behaviour, the characteristics of the markets for the various inputs including labour, fiscal impact on the firm and various other issues, but it also needs to have an open mind to find new niches and to be willing to withstand the storm under an umbrella of falling margins while imagining new ways to allocate the existing assets in the less predicable environment that looms ahead in the next few months of this year.
how is the government?
Firms are constantly making decisions about their near future. In developing economies in particular, the value of imports, like a piece of equipment, a computer or new software for example, depends on the exchange rate. If the government has a monetary policy that is dedicated to stabilise its currency and has conservative fiscal policy, firms will have a relatively clear view of the investment horizon. In that case choosing an array of safe assets with an acceptable return is not that risky.
For instance, countries like Argentina have been able to absorb the shock better than its big neighbours like Brazil or some other countries because its monetary policy stabilises the peso (Argentine currency) to the dollar around a predicable market value. It imposes restrictive capital controls and has a conservative fiscal policy to support its stabilisation plan. It is true that its credit market has felt the impact, but it was not well developed before the crisis. So, one can say that the economic activities in Argentina were not significantly affected by the global crisis. Moreover, because the government taxes the country’s agricultural exports, necessities like beef and grains, revenues have remained stable.
In countries where the government has a floating exchange rate regime and where financial capital can flow freely, relative prices tend to behave erratically during a crisis because fear affects the value of currencies, and thus prices, in unexpected magnitudes. In these cases firms may have to consider relocating to more stable economic environments or to invest in safer assets until the crisis subsides to levels at which the future is more predicable.
As a result, a good understanding of the country’s macroeconomic policy may prove to be important during the process of analysis and planning because successful planning depends in part on the ability of the managers to read the future. And forecasting is more an art than a science. The analyst pieces together different parts of the puzzle to construct a tapestry about the future. The process requires not only formal knowledge of particular production processes, consume behaviour, the characteristics of the markets for the various inputs including labour, fiscal impact on the firm and various other issues, but it also needs to have an open mind to find new niches and to be willing to withstand the storm under an umbrella of falling margins while imagining new ways to allocate the existing assets in the less predicable environment that looms ahead in the next few months of this year.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)
