Many developing countries, and especially the poorest ones, experience high macroeconomic volatility and frequent financial crises. Macroeconomic instability deters growth and entails major welfare costs—particularly severe for the poor, due to their limited asset buffers and inadequate access to risk diversification.
Research studies the nature of the shocks faced by different types of developing countries, and the contribution of policy and other forces (such as external shocks and other exogenous disturbances) to mitigate or exacerbate volatility. It assesses reforms to reduce the frequency and impact of disturbances. Among the questions addressed by the research are:
How does volatility affect growth, and how big is the impact? Is it driven mostly by rare “large” shocks, or by frequent small disturbances?
What are the major sources of macroeconomic instability—exogenous external shocks, or self-inflicted policy mistakes?
What is the scope for volatility-reducing macroeconomic policies, e.g., fiscal, public debt and exchange rate management? What is the contribution of microeconomic flexibility?
What is the role of financial development for aggregate volatility? When does it facilitate the absorption of shocks, and when is it a source of macroeconomic fragility?
How large is the welfare cost of aggregate volatility? What are the main determinants of its magnitude?
Policy Research Working Papers
For more policy research working papers from the World Bank's institutional archives, search here using author’s last name, title or working paper number (“wpsxxxx”).
|WPS5929||Financial distortions and the distribution of global volatility||Eden, Maya||2012/01|
|WPS5590||Over the hedge : exchange rate volatility, commodity price correlations, and the structure of trade||Raddatz, Claudio||2011/03|
|WPS5564||How do governments respond after catastrophes ? natural-disaster shocks and the fiscal stance||Melecky, Martin; Raddatz, Claudio||2011/02|
|WPS5408||Credit constraints and the north-south transmission of crises||Nguyen, Ha Minh||2010/08|
|WPS5039||The wrath of God : macroeconomic costs of natural disasters||Raddatz, Claudio||2009/09|
|WPS5002||The growth aftermath of natural disasters||Fomby, Thomas; Ikeda, Yuki; Loayza, Norman||2009/07|
|WPS4980||Natural disasters and growth - going beyond the averages||Loayza, Norman; Olaberria, Eduardo; Rigolini, Jamele; Christiaensen, Luc||2009/06|
|WPS4897||Emerging market fluctuations : what makes the difference ?||Hevia, Constantino||2009/04|
|WPS4445||Emerging market liquidity and crises||Yeyati, Eduardo Levy; Schmukler, Sergio L.; Van Horen, Neeltje||2007/12|
|WPS4382||Fiscal rules, public investment, and growth||Serven, Luis||2007/11|
|WPS4182||The welfare effects of a large depreciation : the case of Egypt, 2000-05||Kraay, Aart||2007/04|
|WPS4158||Walking up the down escalator : public investment and fiscal stability||Easterly, William; Irwin, Timothy; Serven, Luis||2007/03|
|WPS4089||The structural determinants of external vulnerability||Loayza, Norman V.; Raddatz, Claudio||2006/12|
|WPS3469||Regulation and macroeconomic performance||Loayza, Norman V.; Oviedo, Ana Maria; Serven, Luis||2005/01|
|WPS3456||Macroeconomic stability in developing countries - How much is enough?||Montiel, Peter; Serven, Luis||2004/11|
|WPS3322||Tango with the Gringo: the hard peg and real misalignment in Argentina||Alberola, Enrique; Lopez, Humberto; Serven, Luis||2004/06|
|WPS3081||The anatomy of a multiple crisis : why was Argentina special and what can we learn from it?||Perry, Guillermo; Serven, Luis||2003/06|
|WPS2823||Real exchange rate uncertainty and private investment in developing countries||Serven, Luis||2002/04|
|WPS2815||Pricing currency risk : facts and puzzles from currency boards||Schmukler, Sergio L.; Serven, Luis||2002/03|
|21716||The World Bank economic review 14 (3)||Loayza, Norman; Schmidt-Hebbel, Klaus; Serven, Luis; Elbadawi, Ibrahim A.; Mwega, Francis M.; Denizer, Cevdet; Wolf, Holger C.; Montiel, Peter J.; Rodrik, Dani; Aron, Janine; Muellbauer, John; Kraay, Aart; Shankar, Rashmi; Beck, Thorsten; Demirguc-Kunt, Asl'; Levine, Ross||2000/09|
|20655||Securing our future in a global economy||De Ferranti, David; Perry, Guillermo E.; Gill, Indermit S.; Serven, Luis; Ferreira, Francisco H.G.; Ilahi, Nadeem; Maloney, William F.; Rama, Martin||2000/06|
|WPS2309||What drives private saving around the world?||Loayza, Norman; Schmidt-Hebbel, Klaus; Serven, Luis||2000/03|
|WPS2281||External sustainability : a stock equilibrium perspective||Calderon, Cesar; Loayza, Norman; Serven, Luis||2000/01|
|WPS2035||Macroeconomic uncertainty and private investment in developing countries - an empirical investigation||Serven, Luis||1998/12|
|WPS1722||Uncertainty, instability, and irreversible investment : theory, evidence, and lessons for Africa||Serven, Luis||1997/02|
|WPS1472||Fiscal and monetary contraction in Chile : a rational-expectations approach||Schmidt-Hebbel, Klaus; Serven, Luis||1995/06|
|WPS1424||Terms-of-trade shocks and optimal investment : another look at the Laursen-Metzler effect||Serven, Luis||1995/02|
|WPS1382||Saving, investment, and growth in developing countries : an overview||Schmidt-Hebbel, Klaus; Serven, Luis; Solimano, Andres||1994/11|
|WPS1298||Capital goods imports, the real exchange rate, and the current account||Serven, Luis||1994/05|
|WPS1300||Dynamic response to external shocks in classical and Keynesian economies||Schmidt-Hebbel, Klaus; Serven, Luis; DEC||1994/05|
|WPS1299||Fiscal policy in classical and Keynesian open economies||Schmidt-Hebbel, Klaus; Serven, Luis||1994/05|
|WPS1061||Dynamic response to foreign transfers and terms-of-trade shocks in open economies||Schmidt-Hebbel, Klaus; Serven, Luis||1992/12|
|WPS709||An empirical macroeconomic model for policy design : the case of Chile||Serven, Luis; Solimano, Andres||1991/06|
|WPS606||Adjustment policies and investment performance in developing countries : theory, country experiences, and policy implications||Serven, Luis; Solimano, Andres||1991/03|
|WPS562||Anticipated real exchange-rate changes and the dynamics of investment||Serven, Luis||1990/12|
|WPS339||Private investment and macroeconomic adjustment : an overview||Serven, Luis; Solimano, Andres||1989/12|