On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects

Using a sample of 110 developed and developing countries for the period 1990-2004, the chapter claims that a small supply of tradable goods relative to their domestic absorption, and large foreign-exchange denominated debts towards the domestic banking system, denoted Domestic Liability Dollarization, are key determinants of the probability of Systemic Sudden Stop (3S). Moreover, the larger is financial integration, the larger is likely to be the probability of 3S; however, beyond a critical point the relationship gets a sign reversion.

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Structural Transformation, Deep Downturns, and Government Policy

The Oxford Handbook of Structural Transformation ◽

10.1093/oxfordhb/9780198793847.013.1 ◽

2019 ◽

pp. 34-44

Author(s):

Joseph E. Stiglitz

Keyword(s):

Government Policy ◽

Service Sector ◽

Balance Sheet ◽

Structural Transformations ◽

Government Policies ◽

Balance Sheets ◽

The Great Depression ◽

Balance Sheet Effects ◽

Limited Efficacy ◽

Economic Transformations

Most recessions are a result of some shock to the economic system, typically amplified by financial accelerators, and leading to large, persistent balance sheet effects on households and firms. Over time, however, the balance sheets get restored. Even banks recover. But episodically, the ‘shock’ is deeper. It is structural. Among advanced countries, such large economic transformations include the movement from agriculture to manufacturing (completed in the twentieth century), and the more recent movement from manufacturing to the service sector. The associated downturns are longer lasting. The usual tools for restoring growth, particularly monetary policy, are of only limited efficacy. Policies have to be designed to facilitate such transformations: markets on their own typically do not do well. This chapter explains why such transformations are associated with persistently high unemployment, and what kinds of government policies are needed. It looks at the lessons of the Great Depression both for the advanced countries and the developing countries today as they go through their structural transformations.

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Modeling African Economies

The Oxford Handbook of Africa and Economics ◽

10.1093/oxfordhb/9780199687114.013.33 ◽

2015 ◽

pp. 369-392

Author(s):

Andrew Berg ◽

Shu-Chun S. Yang ◽

Luis-Felipe Zanna

Keyword(s):

Low Income ◽

Capital Mobility ◽

Public Investment ◽

Large Population ◽

Balance Sheet ◽

Low Income Countries ◽

International Capital Mobility ◽

Fiscal Multipliers ◽

Balance Sheet Effects ◽

Dynamic Stochastic

This chapter presents a stylized framework for modeling African economies using the dynamic stochastic general equilibrium (DSGE) approach. We introduce several features relevant to low-income countries, including a large population without access to financial markets, restricted international capital mobility, low governance quality, and explicit central bank balance-sheet effects. The calibrated model can be useful in addressing important macroeconomic policy issues in many African economies. The applications presented here include (i) reserve accumulation policy responses to aid surges, (ii) government spending, financing schemes, and fiscal multipliers, (iii) management of natural resource revenues, and (iv) public investment surges and debt sustainability.

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