economia dei paesi emergenti fabrizio coricelli università di siena 2009
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Economia dei Paesi Emergenti
Fabrizio Coricelli
Università di Siena
2009
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Topics Covered
• Growth and crises in Developing and Emerging Markets
• Globalization and crises in Emerging Markets
• Financial Integration and Capital flows to Emerging Markets
• Some considerations on current global crisis
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1. Growth and crises in Developing and Emerging Markets
• Dynamics of output in Developing and Emerging Markets: implications of crises
• Empirical evidence*Cerra, V. and S. Chaman Saxena (2008), "Growth Dynamics: The Myth of
Economic Recovery", American Economic Review, Vol.98, No.1, pp.439-57
• Growth theory*Jones C.I., Introduction to Economic Growth, Second Edition, 2001
Welfare implications of crises:Ranciere, Romain, Aaron Tornell, and Frank Westermann, 2006,
“Decomposing theEffects of Financial Liberalization: Crises vs. Growth”, NBER Working Paper No.12806.
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2. Globalization and external imbalances
• Integration in the global economy: current account dynamics
*Obstfeld, Maurice and Kenneth Rogoff, 2004, Foundations of International Macroeconomics (MIT Press): chapter 2
• International portfolio diversification
*Krugman and Obstfeld, Economia Internazionale, chapter 21
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3. Globalization and crises in Emerging Markets
• Balance of Payments and Currency Crises: Third Generation
• *P. Krugman, Balance Sheets, the Transfer Problem, and Financial Crises, International Tax and Public Finance, Volume 6, Number 4, November 1999 , pp. 459-472(14)
• Aghion, Philippe, Philippe Bacchetta and Abhijit Banerjee, 2001, “Currency crises and monetary policy in an economy with credit constraints” , European Economic Review 45 (2001) 1121–1150
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4. Vulnerability to financial crises in Emerging Markets
• (i) Varieties of Capital market Crises
• (ii) The Economics of Sudden Stops in Capital Flows: Theory and Empirics
• (iii) Rational Contagion
*Calvo Guillermo, 2005, “Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?”, MIT Press, Section III
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5. Financial Integration and Capital flows to Emerging Markets
• Measuring Financial Integration
• Lane, Philip R., and Gian Maria Milesi-Ferretti, 2001, “The External Wealth of Nations:Measures of Foreign Assets and Liabilities for Industrial and Developing Nations,” Journal of International Economics, Vol. 55, pp. 263–94.
• *———, 2006, “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004,” IMF Working Paper 06/69 (Washington:International Monetary Fund).
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6. International Capital Flows: Puzzles and Gains from Financial Integration
• Lucas, Robert E., Jr., 1990, “Why Doesn’t Capital Flow from Rich to Poor Countries,” American Economic Review, Vol. 80, pp. 92–6.
• Gourinchas, Pierre-Olivier, and Olivier Jeanne, 2008, “Capital Flows to Developing Countries: The Allocation Puzzle”, mimeo
• *Krugman-Obstfeld, chapter 21
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Some facts (stylized)
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Crises and trend-growth
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Reversion to trend or permanent output loss?
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Switching regimes, in levels
1 1
2 1
t t t
t t t
y c y
y c y
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Switching regimes, cont.ed
• c can be deterministic, switching at a known date t or stochastic, with s being a random variable
1tt s t ty c y
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Switch in levels, but return to the old trend line
Y(t)
Y(t-1)
ab
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Return to trend line
• Between a and b growth rate is higher than trend
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Comparing countries• Falling behind means staying behind unless the trend growth rate is
high enough to offset the impact of the negative shocks or if there are compensating positive shocks.
• If countries with more frequent contractions have stronger expansions or shallower recessions, then they may still have higher long-run growth.
• For example, neoclassical theory would predict that countries open to international capital flows would have a high potential for growth as external savings would facilitate investment in projects with high marginal returns.
• On the other hand, international capital flows have been volatile, particularly in the last decade. These arguments would suggest a positive relationship between volatility and growth.
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More frequent recessions lower long-term growth (higher volatility lower growth)
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Are deep recessions preceded by strong, unsustainable booms?
• If a recession is triggered as an adjustment to an excessively strong economic boom, then there may be no need for a strong recovery following the recession.
• This hypothesis could explain the scarcity of strong recoveries in the data. Is this true?
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Convergence?
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Poor vs rich country dynamics
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Factors explaining recessions
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Economic and policy variables
• For us the interesting episodes are those that can be affected by economic policy:
• Currency crises, financial crises
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Can crises be helpful?
• Tornell et al.
• Idea is that there are two different growth paths: Safe and risky
• Safe paths do not imply sharp crises, but at the cost of lower average growth
• Risky paths affected by boom and bust, but deliver higher average growth
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Cont.ed
• The story is similar to the standard finance story: equity premium
• Stocks are more volatile (higher risk) but on average they ensure a rate of return that is higher than that on riskless bonds
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Safe and risky paths
• India safe growth path
• Thailand risky growth path
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Credit cycles
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Skewness
3 3_ _
1 1
3 32 2_
1
1 1
1
n n
i ii i
n
ii
Y Y Y Yn n
sk
Y Yn
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Negative skewness
• In the picture above the series is left or negative skewed: the left tail is much longer than the right.
• The mass of the distribution is on the right: few but large negative deviations from the mean
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Frequency of crises
• Crises are occasional
• Low probability of their occurrrence but
• Large effects on output
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Volatility/variance
• The standard deviation or variance are not sufficient statistics for distinguishing safe from risky growth paths
• We need to distinguish risky paths from abundance of random shocks