Olaberria, EduardoRigolini, Jamele2012-03-192012-03-192009-07-01https://hdl.handle.net/10986/4180East Asia has experienced a dramatic decrease in output growth volatility over the past 20 years. This is good news, as output growth volatility affects poor households because of coping strategies that have long-term, harmful consequences, and the overall economy through its negative impact on economic growth. This paper investigates the factors behind this long decline in volatility, and derives lessons about ways to mitigate renewed upward pressure in face of the financial crisis. The authors show that if, on the one hand, high trade openness has sustained economic growth in the past several decades, on the other hand, it has made countries more vulnerable to external fluctuations. Although less frequent terms of trade shocks and more stable growth rates of trading partners have helped to reduce volatility in the past, the same external factors are now putting renewed pressure on volatility. The way forward seems therefore to be to counterbalance the external upward pressure on volatility by improving domestic factors. Elements under domestic control that can help countries deal with high volatility include more accountable institutions, better regulated financial markets, and more stable fiscal and monetary policies.CC BY 3.0 IGOADVERSE EFFECTSAGGREGATE OUTPUTALLOCATION OF RESOURCESAMERICAN ECONOMIC REVIEWASSETSAVERAGE GROWTHAVERAGE GROWTH RATEAVERAGE LEVELBANK SUPERVISIONBANKINGBANKING CRISISBANKRUPTCYBONDBORROWERSBUSINESS CYCLEBUSINESS CYCLESBUSINESS PRACTICESCAPITA GROWTHCAPITAL FLOWSCAPITAL INFLOWSCENTRAL BANKCENTRAL BANKSCOMMODITYCOMMODITY PRICESCOMPARATIVE ADVANTAGECONSUMER PRICECONSUMER PRICE INDEXCONSUMPTION GROWTHCONSUMPTION VOLATILITYCREDITORCRISISCRISIS VOLATILITYCROSS COUNTRYCROSS COUNTRY EVIDENCECYCLICAL FISCAL POLICYCYCLICAL VOLATILITYDEPENDENT VARIABLEDEPOSITDEPOSIT INSURANCEDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDISCRETIONARY POLICIESDIVERSIFICATIONDOMESTIC CREDITDUTCH DISEASEDYNAMIC PANELEARNINGSECONOMETRIC EVIDENCEECONOMIC ACTIVITYECONOMIC CRISESECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC MODELSECONOMIC OUTLOOKECONOMIC PERFORMANCEECONOMIC POLICYECONOMIC SHOCKSECONOMIC UNCERTAINTYEFFECT OF RECESSIONSEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET BUSINESSEMERGING MARKETSEQUITYERROR TERMESTIMATED REDUCTIONESTIMATION METHODEXCHANGEEXCHANGE RATEEXOGENOUS SHOCKSEXPLANATORY VARIABLESEXTERNAL CONDITIONSEXTERNAL FACTORSEXTERNAL SHOCKEXTERNAL SHOCKSEXTERNAL VULNERABILITYFEDERAL RESERVEFINANCIAL CRISISFINANCIAL DEPTHFINANCIAL DEVELOPMENTFINANCIAL FLOWSFINANCIAL INSTITUTIONSFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL STABILITYFISCAL CONSOLIDATIONSFISCAL MANAGEMENTFISCAL POLICIESFISCAL POLICYFLUCTUATIONSFOREIGN CAPITALFOREIGN DIRECT INVESTMENTSFUTUREGLOBAL BUSINESSGLOBAL ECONOMYGLOBALIZATIONGOVERNMENT CONSUMPTIONGOVERNMENT SPENDINGGROWTHGROWTH PERFORMANCEGROWTH RATEGROWTH RATESGROWTH REGRESSIONGROWTH VOLATILITYHIGH INCOMEHIGH TRADE OPENNESSHIGH VOLATILITYHIGH-INCOME COUNTRIESHIGHER VOLATILITYHOUSEHOLD WELFAREIMPACT OF SHOCKSINCOMEINCOME RISKINFLATIONINFLATION EXPECTATIONSINFLATION RATEINFLATION TARGETINGINFLATION VOLATILITYINTERACTION TERMSINTERESTINTEREST RATEINTEREST RATE SHOCKSINTEREST RATESINTERNATIONAL INTERESTINTERNATIONAL INTEREST RATESINTERNATIONAL MONETARY FUNDINTERNATIONAL PRICESINTERNATIONAL RESERVESINVESTMENTINVESTORSLABOR MARKETLAGGED DEPENDENTLAGGED LEVELSLAGGED VALUESLENDER OF LAST RESORTLEVERAGELIBERALIZATIONLINK BETWEEN VOLATILITYLIQUIDITYLIQUIDITY CRISESLOW INCOMELOW INCOME COUNTRIESLOW-INCOME COUNTRIESMACROECONOMIC FLUCTUATIONSMACROECONOMIC MANAGEMENTMACROECONOMIC POLICIESMACROECONOMIC STABILITYMACROECONOMIC VOLATILITYMACROECONOMICSMEDIUM TERMMIDDLE INCOMEMIDDLE INCOME COUNTRIESMIDDLE-INCOME COUNTRIESMONETARY ECONOMICSMONETARY POLICIESMONETARY POLICYMONETARY RESEARCHMONEYNATURAL DISASTERSNEGATIVE EFFECTNEGATIVE IMPACT0 HYPOTHESISOPEN ECONOMIESOPEN ECONOMYOUTPUTOUTPUT GROWTHOUTPUT VOLATILITYOVERALL VOLATILITYPER CAPITA GROWTHPOLICY MAKERSPOLICY RESEARCHPOLITICAL ECONOMYPOLITICAL POWERPOLITICAL REGIMEPOOR COUNTRIESPOOR HOUSEHOLDSPOVERTYPRICESPRIVATE SECTORPRODUCTION STRUCTUREPRUDENTIAL SUPERVISIONRATE OF GROWTHRECESSIONSREVERSE CAUSATIONREVIEW OF ECONOMICSRISK SHARINGROBUSTNESS CHECKSAFETY NETSSCATTER PLOTSERIAL CORRELATIONSHARESIGNIFICANT EFFECTSIGNIFICANT IMPACTSOCIAL PROTECTIONSTABILIZATIONSTABLE GROWTHSTABLE INFLATIONSTANDARD DEVIATIONSUM OF IMPORTSTAXTAX BASE VARIABILITYTERMS OF TRADETRADETRADE GROWTHTRADE SHOCKSTRADE VOLUMESTRADING PARTNERSUPWARD PRESSUREVOLATILITIESVOLATILITY MEASURESVOLATILITY OF INFLATIONVOLATILITY OF TERMS OF TRADE SHOCKSWEIGHTSWORLD DEVELOPMENT INDICATORSWORLD ECONOMYWorld Bank10.1596/1813-9450-4989