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Macroeconomic Volatility

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”).

WPS5929Financial distortions and the distribution of global volatilityEden, Maya2012/01
WPS5590Over the hedge : exchange rate volatility, commodity price correlations, and the structure of tradeRaddatz, Claudio2011/03
WPS5564How do governments respond after catastrophes ? natural-disaster shocks and the fiscal stanceMelecky, Martin; Raddatz, Claudio2011/02
WPS5408Credit constraints and the north-south transmission of crisesNguyen, Ha Minh2010/08
WPS5039The wrath of God : macroeconomic costs of natural disastersRaddatz, Claudio2009/09
WPS5002The growth aftermath of natural disastersFomby, Thomas; Ikeda, Yuki; Loayza, Norman2009/07
WPS4980Natural disasters and growth - going beyond the averagesLoayza, Norman; Olaberria, Eduardo; Rigolini, Jamele; Christiaensen, Luc2009/06
WPS4897Emerging market fluctuations : what makes the difference ?Hevia, Constantino2009/04
WPS4445Emerging market liquidity and crisesYeyati, Eduardo Levy; Schmukler, Sergio L.; Van Horen, Neeltje2007/12
WPS4382Fiscal rules, public investment, and growthServen, Luis2007/11
WPS4182The welfare effects of a large depreciation : the case of Egypt, 2000-05Kraay, Aart2007/04
WPS4158Walking up the down escalator : public investment and fiscal stabilityEasterly, William; Irwin, Timothy; Serven, Luis2007/03
WPS4089The structural determinants of external vulnerabilityLoayza, Norman V.; Raddatz, Claudio2006/12
WPS3469Regulation and macroeconomic performanceLoayza, Norman V.; Oviedo, Ana Maria; Serven, Luis2005/01
WPS3456Macroeconomic stability in developing countries - How much is enough?Montiel, Peter; Serven, Luis2004/11
WPS3322Tango with the Gringo: the hard peg and real misalignment in ArgentinaAlberola, Enrique; Lopez, Humberto; Serven, Luis2004/06
WPS3081The anatomy of a multiple crisis : why was Argentina special and what can we learn from it?Perry, Guillermo; Serven, Luis2003/06
WPS2823Real exchange rate uncertainty and private investment in developing countriesServen, Luis2002/04
WPS2815Pricing currency risk : facts and puzzles from currency boardsSchmukler, Sergio L.; Serven, Luis2002/03
21716The 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, Ross2000/09
20655Securing our future in a global economyDe Ferranti, David; Perry, Guillermo E.; Gill, Indermit S.; Serven, Luis; Ferreira, Francisco H.G.; Ilahi, Nadeem; Maloney, William F.; Rama, Martin2000/06
WPS2309What drives private saving around the world?Loayza, Norman; Schmidt-Hebbel, Klaus; Serven, Luis2000/03
WPS2281External sustainability : a stock equilibrium perspectiveCalderon, Cesar; Loayza, Norman; Serven, Luis2000/01
WPS2035Macroeconomic uncertainty and private investment in developing countries - an empirical investigationServen, Luis1998/12
WPS1722Uncertainty, instability, and irreversible investment : theory, evidence, and lessons for AfricaServen, Luis1997/02
WPS1472Fiscal and monetary contraction in Chile : a rational-expectations approachSchmidt-Hebbel, Klaus; Serven, Luis1995/06
WPS1424Terms-of-trade shocks and optimal investment : another look at the Laursen-Metzler effectServen, Luis1995/02
WPS1382Saving, investment, and growth in developing countries : an overviewSchmidt-Hebbel, Klaus; Serven, Luis; Solimano, Andres1994/11
WPS1298Capital goods imports, the real exchange rate, and the current accountServen, Luis1994/05
WPS1300Dynamic response to external shocks in classical and Keynesian economiesSchmidt-Hebbel, Klaus; Serven, Luis; DEC1994/05
WPS1299Fiscal policy in classical and Keynesian open economiesSchmidt-Hebbel, Klaus; Serven, Luis1994/05
WPS1061Dynamic response to foreign transfers and terms-of-trade shocks in open economiesSchmidt-Hebbel, Klaus; Serven, Luis1992/12
WPS709An empirical macroeconomic model for policy design : the case of ChileServen, Luis; Solimano, Andres1991/06
WPS606Adjustment policies and investment performance in developing countries : theory, country experiences, and policy implicationsServen, Luis; Solimano, Andres1991/03
WPS562Anticipated real exchange-rate changes and the dynamics of investmentServen, Luis1990/12
WPS339Private investment and macroeconomic adjustment : an overviewServen, Luis; Solimano, Andres1989/12


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