ECGA 5450 Crises, Adjustment and Poverty

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ECON 5450 Crises, Adjustment and Poverty in LDCs Fall 2012

Darryl McLeod Economics Department

Course Description: In a surprising reversal of fortune, OECD countries (the EU, U.S. and Japan) remain mired

in the backwash of the 2008 financial crisis while countries In the South and East grow and prosper. What lessons

can the OECD countries learn from similar crises in Asia and Latin America during the 1980s and 1990s? How

did Asia, Latin America and Africa avoid the worst of the 2008 crisis? This course explores how developing

countries cope with and adjust to and prevent periodic banking and balance of payment crises. Key special

topic is the distributional consequences of financial crises for poor and vulnerable groups (see UNICEF studies)

and the role of the IMF. The 1946 Bretton Woods agreement charged the IMF with mitigating contagion and

supporting a managed exchange rate system. Until recently it main task seemed to be imposing the Washington

Consensus (“conditionality”) on developing countries. But since 2008 it has become more dependent on the

Group of 20 and in a return to its Bretton Woods roots, it is helping the ECB defend the EURO and deal Southern

European debt problems. Since 2008 the IMF has extended BoP assistance to Iceland, Belarus, Latvia, Sri Lanka,

Pakistan, Mongolia, Hungary, Georgia, and more recently to Portugal, Ireland, Italy, Greece, and Spain (not all

of these countries have accessed IMF credity lines, but the IMF’s crisis map has more markers in Europe every year).

Is the IMF helping end the crisis or making it worse? Both the role of the IMF and/or the impact of crises on the

Poor and vulnerable in developing countries are topics for country projects (discussed below).

Booms and busts exacerbated by financial crises seem to characteristic of capitalist growth and development. The

2008 financial crisis is severe but not unprecedented. Developing countries and commodity exporters in particular

have long struggled with debt and currency crises aggravated by bank failures and sudden stops in private capital

inflows. Even foreign aid flows can be volatile, during and after conflict for example. This course focuses on how

developing countries coped with the recent crisis and previous debt and currency in crises. The current crisis has

mainly affected the OECD countries, but ironically lessons for coping with financial learned in developing countries

are being applied with some success by policy makers and economists (see Frankel’s NBER survey).

Course requirements: The midterm and final exam account for 55% of the course grade (25% and 35%). Several

problem sets (20%) and a crisis and adjustment case study/presentation account for the remaining 45% of the course

grade. The weight of the take-home midterm can be reduced if case studies are presented to the class for discussion.

Office Hours: Wed 9:30-10:30pm and Monday at 5:30pm or by appointment. Office hours are in my office E-527

Dealy, but check in 207 Dealy Wednesday and 208 Keating on Monday, check my web page for changes in

Office hours, it is always best to confirm a meeting by email at mcleod@fordham.edu and/or by calling my cell

914 661-6998 when you get to my office or in the AM the same day.

Recommended texts:

Agénor, Pierre-Richard (2004) Adjustment and Growth 2nd edition (not 1^st edition) Harvard Univ Press,

0674015789 Introduction (PhD students: also used for ECGA 6470 Growth and Development)

Agénor, Pierre-Richard and Montiel, Peter (2008) Macroeconomics for Developing Countries, 3^rd ed.

Princeton Univ Press

*Krugman, P. (2012) End this Depression now!, WW Norton, NY $9.5 Kindle, $15 paper, read intro, 0393088774

Sachs J.G. & F. Larraine (1992) Macroeconomics in a Global Economy, Prentice-Hall. (S&L) Chapters 6 and

20-23 provides good and at times unique review of open economy macroeconomics with a focus on LDCs

*Krugman (2009) The return of Depression Economics and the Crisis of 2008, WW Norton, 0393337804 Kindle $10, paper $11.

Montiel, Peter (2011) Macroeonomics in Emerging Markets, 2^nd ed. Cambridge Univ Press, $32 Kindle, 0521733049

*Reinhart, Carmen M. and Kenneth Rogoff (2009) This Time Is Different: Eight Centuries of Financial Crisis

($13 paper or $9 Kindle) Princeton University Press, Princeton, NJ, read first few chapters free online.

*I suggest purchasing these books (Masters and PhD) on ebook or paper, PhD students should have Agenor 2004

and/or Angenor and Montiel (2008) 3^rd Ed. as reference books in this area. Montiel (2011) are Master’s level texts,

but S&L Sachs and Larraine (1992) provides a complete text for the key intertemporal current account and dependent

economy or TNT models used in this course. The library has two copies of the S&L and Eres has chapters as well.

Topics Outline Fall 2012:

1. How did developing countries largely escape the 2008 crisis? How have the poor fared?

2. Current account imbalances: did “global imbalances” cause the 2008 financial crisis?

3. Classical and modern approaches to balance of payments adjustment.

4. Social budgeting distributional impacts of crisis on poverty and inequality.

5. Currency and banking crises: twin crises and twin

6. The role of the IMF, the UN and the World Bank in mitigating crises.

7. Crisis safety nets and the distributional consequences of external shocks.

8. Managing aid surges post-conflict, post-disaster and to cope with health crises

9. New approaches to Monetary policy in developing countries.

10. Private Capital flows to poor countries: boon or bane?

11. The Political economy of crises and reform

	ECON 5450 Prices Fall 2011 (let me know if you find more up to date prices)
Level	Author	Title	Date edition	Publisher	ISBN	Kindle^1/		Used^2/		New^3/		Rent^4/	Min
both	Rheinhart& Rogoff	This Time is Different	2009-H	Harvard	691142165	9.2		17		20		8.0	8.0
both	Roubini and Mihm	Crisis Economics, A crash course	2011-P	Penguin	014311963X	10		8.0		9.0		11.5	8.0
both	Krugman, Paul	Return of Depression Economics	2008-P	Norton	393071014	10		4.0		10		10	4.0
Masters	Sachs and Larrain	Macroeconomics in a global economy	2000-H	Prent-Hall	0135442060	NA		10.0				46	10
PhD	Agenor, Pierre	Economics of Adj & Growth 2^nd	2008-H	Harvard	674015789			66		71		40	40
PhD	Agenor & Montiel	Development Macro Econ 3^rd ed	2010-P	Princeton	691130906	41		51		50		39	39
PhD	Izquiredo,Alejandro	Adjustment Policies, Poverty, and Unemployment	2007	Blackwell	1405136332			39		51		59	39
	1/Dealoz used price August 2011, includes shipping no tax of course.				Total to buy all books recommended
	2/ This is the kindle price, other ebook formats are available.				Masters Student		39		39		76		30
	3/ Amazon or dealoz new price does not include shipping or tax.				PhD Student		185		211		168		138
	4/ rent or buy and return.