Macroeconomic Volatility and Welfare in Developing Countries

creativeworkseries.issn 1564-698X Loayza, Norman V. Rancière, Romain Servén, Luis Ventura, Jaume 2012-03-30T07:12:36Z 2012-03-30T07:12:36Z 2007-09
dc.description.abstract Macroeconomic Volatility and Welfare in Developing Countries: An Introduction Norman V. Loayza, Romain Ranciere, Luis Serven, ` and Jaume Ventura Macroeconomic volatility, both a source and a reflection of underdevelopment, is a fundamental concern for developing countries. This article provides a brief overview of the recent literature on macroeconomic volatility in developing countries, highlighting its causes, consequences, and possible remedies. to reduce domestic policy-induced macroeconomic volatility by controlling the level and variability of fiscal expenditures, by keeping inflation low and stable, and by avoiding price rigidity (including that of the exchange rate), which eventually leads to drastic adjustments. The ability to conduct countercyclical fiscal policies is crucial, and it depends largely on the ability of the authorities to reduce public indebtedness to internationally acceptable levels, establish a record of saving in good times to provide for bad times, and develop credibility that forestalls perceptions of wasteful spending and default risk. Governments can reduce financial fragilities and deepen financial markets by eliminating implicit insurance schemes (such as fixed exchange rate regimes) and credit restrictions that distort the valuation of financial assets and liabilities. Following Ehrlich Becker's (1972) classic "comprehensive insurance" framework, three possible options can be identified: Self-protection (reducing the exposure to risk through, for instance, limited trade and financial openness). Primiceri and van Rens (2006*) explore the source of this increase by examining the consumption behavior of a large panel of individuals, finding that their behavior is consistent with an increase in the persistence of individual income shocks. Loayza and Raddatz (2007*) analyze how financial openness and trade openness, as well as product-market flexibility, factor-market flexibility, and domestic financial development, influence the impact of terms of trade shocks on output. To obtain their measure of policy volatility, the authors construct a measure of exogenous policy decisions unrelated to the state of the economy and take the standard deviation of this measure as a proxy for policy volatility. Even so, the literature and the lessons from the Barcelona conference reviewed here can provide some elements of sensible policy recommendations and identify areas where research is especially needed. en
dc.identifier.citation World Bank Economic Review
dc.identifier.issn 1564-698X
dc.publisher World Bank
dc.relation.ispartofseries World Bank Economic Review
dc.rights CC BY-NC-ND 3.0 IGO
dc.rights.holder World Bank
dc.subject Developing Countries
dc.subject economic growth
dc.subject external shocks
dc.subject fiscal policies
dc.subject income
dc.subject International Monetary Fund
dc.subject Macroeconomic Volatility
dc.subject negative fluctuations
dc.subject output volatility
dc.subject underdevelopment
dc.title Macroeconomic Volatility and Welfare in Developing Countries en
dc.title.alternative An Introduction en
dc.type Journal Article en
dc.type Article de journal fr
dc.type Artículo de revista es
dspace.entity.type Publication
okr.doctype Journal Article
okr.globalpractice Macroeconomics and Fiscal Management
okr.globalpractice Finance and Markets
okr.globalpractice Trade and Competitiveness 3
okr.language.supported en
okr.pagenumber 343
okr.pagenumber 357
okr.pdfurl wber_21_3_343.pdf en
okr.peerreview Academic Peer Review Chile Turkiye Indonesia
okr.topic Macroeconomics and Economic Growth :: Economic Conditions and Volatility
okr.topic Private Sector Development :: Emerging Markets
okr.topic Macroeconomics and Economic Growth :: Macroeconomic Management
okr.topic Finance and Financial Sector Development :: Debt Markets
okr.topic Finance and Financial Sector Development :: Currencies and Exchange Rates
okr.volume 21
relation.isAuthorOfPublication 2c4139d2-7458-5296-9aea-6d3db3e1ae1e
relation.isJournalIssueOfPublication b95cbe89-7d17-488a-afcf-746a0a4dcfea
relation.isJournalOfPublication c41eae2f-cf94-449d-86b7-f062aebe893f
relation.isJournalVolumeOfPublication 5586d687-0acc-4416-ace0-8fcc3b13a63e
Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
English PDF
505.1 KB
Adobe Portable Document Format