ECON 5450 Crises, Adjustment and Poverty
in LDCs Fall
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
on developing countries. But since 2008 it has become more dependent
Group of 20 and in
a return to its Bretton Woods roots, it is helping the ECB defend the EURO and deal
European debt problems. Since 2008 the IMF has extended BoP assistance to Iceland, Belarus, Latvia,
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).
and busts exacerbated by financial crises seem to characteristic of capitalist growth
and development. The
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
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
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
Office Hours: Wed 9:30-10:30pm
and Monday at 5:30pm or by appointment. Office hours are in my office
but check in 207 Dealy Wednesday and 208 Keating on
Monday, check my
web page for changes in
hours, it is always best to confirm a meeting by email at email@example.com and/or
by calling my cell
914 661-6998 when you get to
my office or in the AM the same day.
Pierre-Richard (2004) Adjustment and Growth 2nd
edition (not 1st edition) Harvard Univ
0674015789 Introduction (PhD students: also used for ECGA 6470 Growth
Agénor, Pierre-Richard and Montiel,
Peter (2008) Macroeconomics
for Developing Countries, 3rd ed.
Princeton Univ Press
*Krugman, P. (2012) End
this Depression now!, WW Norton, NY $9.5
Kindle, $15 paper, read
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
Montiel, Peter (2011) Macroeonomics
in Emerging Markets, 2nd ed. Cambridge Univ
*Reinhart, Carmen M. and
Kenneth Rogoff (2009) This Time Is
Different: Eight Centuries of Financial Crisis
paper or $9 Kindle)
Princeton University Press, Princeton, NJ, read first few
chapters free online.
purchasing these books (Masters and PhD) on ebook or
paper, PhD students should have Agenor 2004
and/or Angenor and Montiel (2008) 3rd 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
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
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
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)
Time is Different
Economics, A crash course
of Depression Economics
in a global economy
of Adj & Growth 2nd
Macro Econ 3rd ed
Policies, Poverty, and Unemployment
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.
3/ Amazon or dealoz new price does not
include shipping or tax.
4/ rent or buy and return.
Recommended, some required
World Bank (2009) Global
Development Finance: The Development Potential of Surging Capital Flows,
Jean (2002) Financial Crises, Liquidity and the International Monetary System,
Princeton Univ. Press
Barry (2002) Financial Crises and What to do about them, Oxford U. Press 019257442
Frankel, J. and A. Razin
(1996) Fiscal Policies and Growth in the World Economy, 3rd ed. MIT
Good integrated graphical presentation of intertemporal
current account dynamics Chapters 5 & 21.
Obstfeld and Rogoff
(1998) Foundations International Macroeconomics, Chapter. 1, MIT Press
Excellent more advanced Open-economy macro text, but oriented mainly toward
Readings by Topic (*required reading **PhD students only): return to
1. Why is the
West doing so much worse than the rest of the world?
Krugman (2009) return
of depression economics, pages 1-22
Case study: did global imbalances cause the
Peter Garber (2009) Global
imbalances and the crisis: A solution in search of a problem
Vox economica, 21
Miranda (2008) Global
Imbalances: do they matter? Cato
Journal, Winter vol. 27, number 1.
Sester, Brad (2008) “Bretton Woods 2 and the Current Crisis: Any Link?
Council on Foreign Relations
Pre-crisis views: Bernanke on Global Imbalances A slightly different view from the head of FRBNY
Raghuram Rajan (2005) Global Current Account Imbalances IMF
Speech March 15th 2005
Impacts of the Current Financial Crisis:
World Bank Global
Monitoring Report: factsheet on impact of global crisis on
UNICEF Ronald Mendoza (2009) Aggregate Shocks, Poor Household and Children:
Channels and Policy
Responses (will speak at Fordham LC, September 22nd, 4pm, please
attend if you can, launch
of Fordham Social Justice Consortium.
UNDP Crisis page (excellent short film on crisis impact on exports, garment
3. Crisis economics and antidotes to global
crisis why are they working for some not others?
G-20 boosts IMF Lending to $1 trillion (potentially)
depreciation in Mexico, Brazil, Nigeria,
Scaling up aid
(World Bank President Robert Zoellick’s Vulnerability
China and India
stimulus (plus reserves) Nigeria coping with a sharp drop in oil prices,
Mexico: coping with
everything (H1N1, export collapse, lower remittances, drug related violence)
thinking on external adjustment I: Elasticity, Absorption
& Monetary Approach
Elasticity Approach Notes
Monetary Approach Handout Benefits/costs of alternative Adjustment Strategies
*de Vries,M.G. (1987) pp 7-30 *Boughton, James
(2000) The Silent Revolution
Helmers Chapter 2 The RER pp. 10-23 Gillis et al. Adjustment in a small open economy
(TNT & MABP)
Agénor sections *(9.2-9.4) (skip 9.1 & 9.5) Hinkle
& Montiel (1999) FX Misalignment (on CD)
5. External Adjustment II: Intertemporal,
TNT & Mundell-Fleming CA models
(1993) Chapters *6, 13.1-13.3, 14.1-14.2, and 21A & 21B (ERES) Overshooting Handout
Economist & Rogoff (2001) “Overshooting” Mundell-Fleming Handout Problem Set #2
Frankel and Razin (1996) 3rd ed. Chapter **17 chapter 5**; **Agénor Chapters 1,2
Rogoff (1998) International Macroeconomics, Chapter 1, MIT Press.
6. Financial crises
in emerging markets: cures, causes, costs and benefits
Tirole Introduction and Chapter 1 Tornell, Westerman and Martinez (2004) “Financial,
Liberalization Growth and Crises” NBER WP #10293
Eichengreen, (2004) Financial Instability (pages 1-36)
or (1999) Chapters 1-2 and App. B
World Bank (2006) GDF: The Development Potential of Surging
Capital Flows, *Overview and *Chapt. 5
& Dunaway (2007) China’s
Sebastian (2005) Is The U.S. Current Account Deficit Sustainable?
And If Not, How Costly Is Adjustment Likely To Be? NBER WP #11541
Obstfeld & Rogoff (2005) The Unsustainable U.S. Current Account Deficit Revisited
IMF World Economic Outlook Chapter 5 Globalization and External Imbalances
Commanding Heights Episode 3 Chapters
1,5,6,11,12 (on line)
World Bank, GDF 2004, Overview and Chapter 1 A Mystery slides GDF presentation slides
Guitan, M. The
Challenge of Managing Global Capital Flows, F&D, June 1998 (CD)
7. Managing Aid flows:
conflict and disaster recovery
Sangeev et. al (2005) Macro Challenges of Scaling up Aid to Africa
(Chapters *1 & *2)
al (2002) The Economics of Post Conflict Aid, IMF Working Paper
Collier, et. al. (2003) Breaking the Conflict Trap, Chapter 5
(World Bank on the CD)
and Anke Hoeffler (2001) Aid, Policy and Growth in Post-Conflict Societies
Sangeev, R. Powell and Y. Yang (2006) Macroeconomic Challenges of Scaling up Aid to Africa,
for Practitioners, IMF, Washington DC.
(2004) The Macroeconomics of HIV/AIDS, IMF,
Washington D.C. http://www.imf.org/external/pubs/ft/aids/eng/
Elbadawi, I. A., Kaltani, L &
K. Schmidt-Hebbel (2007) “Post-Conflict Aid, Real Exchange Rate Adjustment,
Growth”, World Bank Policy Research Working Paper 4187, http://go.worldbank.org/PI1GZKJ2B0
and D. Rodrik (2003) Discovering El Salvador’s growth potential
Sam Jones and Finn Tarp (2006) “Aid and Development: The Mozambican Case”
Copenhagen, Department of Economics, Discussion Paper 06-13.
Stabilization, Safety Nets and Income Distribution to topics Income Dist Handout
Bourguignon, F & C. Morrisson
(1992) Adjustment & Equity in LDCs (OECD, Paris).
*Clement, Benedict (1997) Brazil’s Real Plan, Income Dist. &
Poverty, F&D, Sept.
*Lustig, Nora (1999)“Crises & the Poor: Socially Responsible
Easterly and Fischer (2001) Inflation and the Poor, JMCB.
World Bank, Managing Economic Crises Chapter 9 2001 WDR World Bank,
World Bank, Safety Nets and Transfers
Romer and Romer (1998) “Monetary Policy & the Poor”,NBER WP #6793 [CD]
Subbarao,Braithwaite, Jalan (1997) Protecting the Poor During Adjustment, WB
Political Economy of Stabilization and Reform: return to topics
*Drazen (2000) Inaction Delay and Crises See also Agénor Chapt 17 section 4 Chapt 17 part 1
*Agénor Chapter 17 Clift and J. Williamson Beyond the
Washington Consensus, September 2003
*Haggard, S. & S. Webb (1993)
"Political Economy of Reform," WBRO, 8:2,143-68, [ERes]
*Haggard, S. & S. Webb (1996) Voting
for Reform “Introduction” [ERes]
Drazen, A. (2001) Conditionality: A Political Economy
Alesina & Drazen
(1991) Why Stabilizations are Delayed AER,81:5, pp. 1170-1188 [CD]
Williamson, J (1990) What Washington Means by Reform (2002) Did the Washington Consensus Fail?
Dani Rodrik (1993) The
Positive Economics of Policy Reform, AER, 83:2,356-361 [CD]
"What Determines Success or Failure of Fund
Programs?" pp, 1-11.
Dollar & Swensson Explaining the Success of Structural
Adjustment Programs World Bank.
Allan Drazen& Vittorio Grilli(1993) Do crises benefit reform?, AER, 83:3,598-607.
Alesina, Alberto (1994)
“Political Models of Fiscal Reform”, in Haggard & Webb (1994) op.cit.
10. Globalization, commodity price
shocks and the return of high inflation:
Rogoff et. al
(2006) slides Rogoff
(2004) Gruben and McLeod (2006)
Agénor Sections 3.1,3.2, Chapt 6 2nd
ed, 9.6. Defining Fiscal Deficits chart only Brazil’s Inflation
*Calvo & Vegh
(1994) “Stabilization & Nominal Anchors” CEP
XII,35-45 . High Inflation Handout
J. and A. Prati (2001) “Why Do Many Disinflations Fail” pp. 1-9
& 17-38 (IMF Working Paper
Calvo and Vegh (1997) “Inflation
Stabilization…” in Taylor & Woodford, ed. Handbook of Macroeconomics
Quirk, Peter (1996) “Exchange Rate Regimes as
Inflation Anchors” F&D, IMF, March 1996
Dornbusch, R. (1993) "Lessons from High
Inflation..." in Stablization, Debt and Reform, Prentice Hall.
M. Kiguel and N Liviatan(1992) "When Do
Heterodox Stabilization Programs Work?" WBRO, 7:1, 35-58.
Dornbusch, R and Stanley Fischer,
"Moderate Inflation," WBER, January 1993, 7(1), pp. 1-44.
11. The WB-IMF and their critics
(debate): (return to topic list)
IMF out of Argentina
Contemporary IMF critics and
supporters: Keeping Capital Flowing
IMF-IEO The IMF in recent Capital Account Crises in
Indonesia, Korea and Brazil
IMF-IEO Argentina Rogoff’s IMF Strikes Back
IMF-IEO SubSaharan Africa Stanley Fischer Asian Crisis: View from the IMF
IFIAC (Meltzer) Commission Report and Associated Studies
Fishlow(2000) It’s Working Economist: A Thankless Job IMF Conditionality: Policy Issues
K. Rogoff *Moral Hazard, F&D 9-02; *Managing World Economy; Easing Pain
& Sharma (2002) *Conditionality and Country Ownership
F&D June 2002
*full article: IMF Working Paper No. 01/142
M Mussa & M. Savastano (1999) “the IMF
Approach to Stabilization” WP/99/104
(see also Masson & Mussa, The Role of the IMF, IMF Pamphlet 50,
M .Feldstein, Refocus the IMF, Foreign Affairs –
Stanley Fischer (1998) The IMF and the Asian Crisis IMF Survey: Fischer Reflects
(1997) IMF a power onto itself, FT 12-11-97 Allan Meltzer Interview 2003
Morris (2000) Structural Conditionality: How Much is too much?
criticisms of the IMF:
Bacha, E. (1987)
"IMF Conditionality: Conceptual Problems …" WD 15:12, 1457-67.
"IMF Conditionality: Misdirected, Ineffectual" Princeton Essays in
Lance (1988) Varieties of Stabilization Experience (Oxford Univ Press,
A. (2001) of IMF An Analysis of IMF Conditionality… G24 working paper ??
(1983)"IMF Financial Programs and Conditionality" JDE 12,111-36.
12. Currency and Banking Crises: causes and cures.
*Generations of Currency crisis models
Chapter 8 (esp. *8.2-8.4) *Tirole Chapter 1 and *Chapter 2 &3
Berg, A. et.al. Monetary regime options for Latin America F&D September
Fischer, Stanley “Is the Bi-Polar View Correct?” IMF Occasional Paper 193 Fx Regimes
R.(2001) A Primer on Emerging Market Currency Crises
Generation Currency Crisis Models *Mechanics
of Speculative attacks (F&D, 1997)
*Agénor Chapter 8, Sachs and
Larraine, Chapter 11, especially pp. 335-343. IMF WEO 1995
and Marion (1998) Perspectives on Recent Currency Crises, IMF WP/98/130
IMF International Capital Markets, 1997
Appendix 2 page 37 and *IMF * ICM 1995 part III.
2nd Generation Currency Crisis Models—Fixed vs. Flexible Rates:
Obstfeld and Rogoff (1996) Section 9.5.
smaller file for printing
Calvo, G. & Carmen
Reinhart, Capital Flows, Exchange Rates, and Dollarization, F&D, Sept
McLeod & Welch (1993) "Costs and Benefits of Fixed Exchange Rates.."
Dallas Fed Economic Review,
Dallas Federal Reserve Bank, 31-44 (or see Agénor Chapter 5 )
Roubini, N. (1998) The Case Against Currency Boards, A.
Gulde, and H. Wolf, Currency Boards:
Currency Boards: the Ultimate Fix? IMF Working Paper, WP/98/8, IMF, 1998
Generation Models: Banking and Currency Crisis in Emerging Markets:
Notes on Chang and Velasco *Chang, Roberto and Velasco "The Asia Liquidity Crises"
et.al. “The Bottom Line” F&D Dec. 2002
summary of “The Balance Sheet
Approach to Financial
Crisis, IMF Working Paper WP/02/210
Calvo, Guillermo "Balance of Payments Crises in Emerging Markets"
NBER, March 1998.
7.4 Predicting Currency Crises: Kaminsky,Lizondo & Rheinhart (1998) Leading Indicators of Crises,
App & references IMFSP, 45:1,
March 1998 *Mulder C. “Assessing Dangers” F&D Dec. 2002.
IMF Global Financial Stability Report--March 2002 Chapter
4 “Early Warning Systems”
IMF Fact Sheet: Vulnerability Indicators Edwards, S. (2000) “Does the CA matter?”
Esquivel, G and F. Larrain (1998)
Explaining Currency Crises, HIID, processed, Boston,
Salvatore, D. and Reagle (2001) “Lessons
From Asia’s Financial Crisis” Open Economy Review.
Andrew Berg and Catherine Pattillo (1999)
Are Currency Crises Predictable?” IMFSP, 46:2,
7.5 Contagion: Kaminsky, G. & Reinhart, C. (1998) “Crises
Contagion, Confusion..” [CD]
Kristina IMF Global Financial Stability Report--March 2002 (see
IMF WEO 1999 Chapter 3 Contagion Roubini Contagion Page
13. Managing LDC
Debt and Capital Flows: topic list Notes on Financial Integration & Crises
*Edwards (2005) Capital Controls and Sudden Stops
Christina “Debt: How much is too much? F&D Dec. 2002
IMF WEO (2001) Chapt 4 International Financial Integration IMF Occ Paper 190 Capital Controls
GDF 2001 *Chapt 3 Capital Flows & Growth; McLeod
(1996) *Capital Flight (Encyclopedia of
*Agénor Chapter 6. *WEO 1998 Chapter 2 World Bank: Global Economic Prospects Chapter 3
Lopez-Mejia, A (1999) Large Capital
Flows: Causes, Consequences and Responses, IMF WP/99/17
IMF, WEO Oct
1999, Box 2.2 “Capital Flows to Emerging Markets”, pp. 62-65.
Box 2.4 “Malaysia’s Response to Financial Crisis, How Unorthodox was it?” pp.
IMF ICM, 1997 Annex VI, Capital Flows to
Emerging Markets—A Historical Perspective
IMF,ICM 1998 Annex IV
"Chile's experience" [CD]
and Hernandez (1996) "Adjusting to Capital Inflows: LatAm vs. Asia", WBRO,
14. From Stabilization to Growth:
Debt relief and structural adjustment
Agénor Chapter 9.4-9.5 *15.1,*15.5 and *16 return to topic list Calvo et al. 2006 Phoenix Recoveries
V., S. Fischer and S.B. Webb (1992) Adjust Lending Revisited, Intro
*Dani Rodrik (1992) Trade Policy Reform in Developing Ctys, JEP,6:1,87-105
Dani Rodrik (1991) Policy Uncertainty and Private Investment in Developing Ctys,
Dornbusch, R, (1990) “Classical Macro and Stabilization” AER,
Dornbusch, R, (1991) "Moving from Stabilization to
Growth" World Bank ABCD,
*Paul Krugman, "Reducing Developing County Debt" Revista de
Analisis Econ,4:2,3-18,1989. [CD]
Kahn, M.S. & M.D. Knight (1985) "Fund Adj. Programs &
Growth" IMF Occasional Paper 41.
15. The New
International Financial Architecture: Old Wine in New Bottles? return to topic list
Eichengreen, Barry “Financial Instability” Essay for Copenhagen Consensus (see also comments)
IMF Singapore (2006) Crisis prevention reading list
Lukongo, Inutu “Riding out the Storm” F&D December 2002
*Miller, Marcus (2002) Sovereign Debt Restructuring, Boorman, Key Issues in International Reform
Roubini Debate on IMF and World Bank Reform
*Goldstein (2002) Proposals to Reform the IFA
Swaboda (1999) Reforming International System
Bergsten, Fred (2000) Reforming the IMF
*Krueger,(2002) Sovereign Debt Restructuring Mechanism (SDRM) 1 yr Later
(SDRM Factsheet) Rogoff, Moral Hazard How Big A Concern?
Boorman, SDRM An Update
Eichengreen (2002) Crisis Resolution: A Krueger-Like Process, A Taylor-Like
Dell'Ariccia, Schnabel, Zettelmeyer, (2002) Moral Hazard and International Crisis Lending
Rogoff, J. (1999) International Institutions for Global Financial Stability, JEP,
13, Fall 1999 [CD].
Goldstein "Asia Crisis" Chapter 4.IMF, ICM
1998, page 149-51.
Rodrik, Dani (1999) “Governing the Global Economy: Does
One Style Fit All?”[CD]
16. Case Studies:
study preparation page
Was Asia’s Crisis Different? return to topic list
Managing Financial Crises: the Case of East Asia
Fischer, S. 2000 Asia and the IMF Dornbush: Malaysia: Was it Different?
*Kamin, Steve (1999) The Current
Financial Crisis: How Much Is New? Board of Governors,
Federal Reserve, International
Finance Discussion Papers #636, Washington D.C. [CD].
Steven Radelet and Jeffrey Sachs, "The Onset of the
East Asian Financial Crisis," March 30, 1998 [CD]
& Sachs J (1998) Asia Crisis Diagnosis and Remedies
IMF ICM, 1998 Chapt. 3, Emerging
Markets—Implications of the Asian Crisis [CD]
Dominick. (1999) “Lessons From the Financial Crisis in Asia”.JPM, 21:3
R.(1999) “After Asia: New Directions for the International Financial System”. JPM
Joseph E.(1999) “Lessons From East Asia” Journal of Policy Modeling 21:3
Pesenti, and Roubini, N. (1998) "What Caused the Asian Crisis?" at
crisis web page
16.2 Argentina, Brazil, Chile and Mexico in the 1990s
M. Mussa Argentina’s Crisis: Triumph to Tragedy
& LatAm’s Economic Crisis (www.iie.com)
Edwards, Sebastian (1999)
“Crisis Prevention: Lessons from Mexico & Asia” *Part 1&3
Eichengreen 2002 “New Lessons from Argentina & Turkey?” V.
Corbo, Chile in the 1990s
Velasco and Ricardo Hausmann (2001) Argentina’s Collapse..
Anne O. Krueger
(2002) Crisis Prevention and Resolution: Lessons from Argentina
Case Study Resources
WDI Online database WEO Database September 2005
IMF WEO data for Russia, Bulgaria and Turkey
Asia ctys LatAm ctys
Real Exchange Rate Template (use this spreadsheet to compute
Income Distribution data from the World Bank’s Global
Poverty Monitoring database
Case Study Template Excel file (Mexico) Sample Figures WDI Query for Case Study Data
Growth Rates: LatAm vs. Asia, Turkey and Russia during the
Mexico Primary Deficit Mexico Fiscal Sustainability Mexico Spreadsheet
Notable quotes: return to topics list
on the IMF “The countries that have managed globalization on their own, such
as those in East Asia, have, by and
large, ensured that they reaped huge benefits and that those
benefits were equitably shared; they
were able substantially to control the terms on which they
engaged with the global economy. By
contrast, countries that have, by and large, had globalization
managed for them by the International
Monetary Fund and other international economic institutions
have not done so well. The problem is
thus not with globalization but with how it has been managed.”
Discontents," The American Prospect v.13 no.1, January 1-14, 2002.
Dornbusch on Stiglitz:: "When countries arrive at
the IMF, on a stretcher, this is not the
time for cute ideas. Drastic policies
are necessary to avoid hemorrhage, currency collapse and
irreparable meltdown. Stabilization
is neither a popularity contest nor a research seminar. Today
no finance minister will opt for the
Stiglitz Clinic of Alternative Medicine; they have the ambulance
rush them to the IMF. And when they
do, markets start taking confidence very soon and from
there it is a short step to
normalization. (...) Asia is doing well. The chief lesson for the IMF is
that next time they should apply
exactly the same remedies and enjoy as spectacular success."
to editor of the New Republic (full text)
Stanley Fischer, on “IMF Riots”… “I would like to mention one
very important development of the
last few years, which has occurred
almost without public notice, but that is very important. Up to a few
years ago, there was almost never an
occasion on which bread prices, or fuel prices, were raised by the
50 or 60 or 80 percent that may be
necessary when countries have failed to adjust prices for too long,
without setting off a riot. Naturally
these riots would be blamed on the IMF. Well, such riots are not
necessary. You can compensate people
before hand, and you can inform the public of what is being done,
why, and how they are being
compensated. And as a result, we have been able to help quite a few
for example Ecuador, make necessary
price changes without creating what used to be called "IMF riots".
There are no doubt other areas of
program design where we can help countries do better, by paying careful
attention to offsetting the social
costs of economically necessary measures.”
(Stanley Fischer’s “Farewell to the IMF Executive Board”
August 30, 2001)
Michael Bruno on
Stabilization and Multiple Equilibria,
“The concept of economic reform is described
as a planned
shift from one Pareto inefficient, but quasi-stable, Nash equilibrium (or
"trap") to a new Pareto
equilibrium, which will also be stable. The concept is applied to recent
"shock" stabilization programs,
reference to Israel, where the economy was credibly shifted from a three-digit
considerable inertia, to relative price stability with higher real growth, at
only moderate adjustment costs,
by means of a
"heterodox" plan. The idea is rationalized with a simple dual
equilibrium inflation model, for
econometric estimates are also given.” From Bruno (1989) "Econometrics and
the Design of Reform"
Econometrica, 57:2, 275-306
(1987) "IMF Conditionality: Conceptual Problems, Policy Alternatives"
WD 15:12, 1457-67.
and Weintraub (1981) Economic Stabilization in developing countries (Brookings)
(1982) "Stabilization Policies in Develop Ctys: What Have We
Learned?" WD, 10:2.
C. (1984) "Latin-American Debt: I don't think we are in Kansas
C.F., (1986) "Good-bye Financial Repression, Hello Financial Crash", JDE.
Garber (1984) Collapsing Exchange Rate Regimes" JIE 17, August,
Richard (1991) Adjustment with a Human Face”, WD,19:12, Dec.,1807-21.
(1979) "A Model of Balance of Payments Crisis" JMCB,11,
and L. Taylor (1978) "The Contractionary Effects of Devaluation"
(1985) "External Debt and Macroeconomic Performance” BPEA, 2,
(1988) Varieties of Stabilization Experience (Oxford Univ Press, NY)
Office Hours and Course Requirements return to topics
Course Description: return to topics
This course examines
how developing countries prevent, manage and recover from currency, debt
crises. What makes emerging market countries particularly vulnerable to these
What are the
special macroeconomic constraints faced by less developed countries? How
be shielded from the worst effects of downturns using transfers, safety net
programs and a
more equitable mix of adjustment policies? Can developing countries come to
and reform programs instead of relying on the “one size fits all” approach
favored by the IMF
and World Bank? Are open capital markets and local banks and financial
markets worth the
risk? What have the IMF and developing countries learned from the
the 1990s? Students of this course will become familiar with the special
managing macroeconomic policy in developing countries.
Recommended, Background Reading and Reference: return to topics
Pierre Agenor home page
Michael et. al. eds. (1991) Lessons of Economic Stabilization and After
Eliana and Ann Helwege (1992) Latin America's Economy MIT Press,
& K. Rogoff (1998) Foundations of International Macroeconomics MIT
Razin (1996) Fiscal Policy in the World Economy 2nd ed. (MIT Press)
Corbo, V., S.
Fischer and S.B. Webb (1992) Adjustment Lending Revisited:
Restore Growth, World Bank Symposium,
and F.L. Helmers (1988) The Open Economy: Tools for Policy Makers in Developing
(1993) Stabilization, Debt and Reform, Prentice-Hall, NJ.
ed. (1993) Policymaking in the Open Economy,Oxford University Press.
and S. Webb (1994) Voting for Reform: Democracy, Liberalization &
Capital Markets (ICM) various issues, IMF Washington D.C.
Economic Outlook (WEO), various issues, IMF Publications, Washington.D.C.
A. and R. Nallari (1992) Analytical Approaches to Stbz & Adjust, EDI Paper
(1988) Varieties of Stabilization Experience (Oxford University Press)
(1997) Private Capital Flows to Developing Countries, (Oxford University
You may find
the following sites useful for preparing your case study:
IMF IFS Online: A wide range of financial and
monetary time series for almost all countries.
Statistics Page:includes data on trade, social indicators, debt etc. for
almost all LatAm ctys.
Research Page: this InterAmerican Development Bank page includes issues
an annual “Economic and Social
Progress” report on LatAm.
Page: Just type a name into the country information box at the bottom of the
IMF Publications: Many of these working
papers and WEO-ICM publications are available here—
especially Finance and Development For useful research summaries and book
DSBB Pages: Standardized country data pages sanctioned but not
provided by the IMF—
a source for more up to date data
or alternative local perspectives on crisis and IMF programs.
Bank Data Page: A wide range of country data—the Cairo data set included
CD comes from the growth research page
World Bank Growth Research Page This page
provides many useful papers and data sets—
especially the new Global Development Network database—included on your CD
HIPC Web Page: A
number of African countries plus Bolivia, Nicaragua and Honduras
are HIPCs (highly indebted poor
Papers on Economic Activity
Contemporary Policy Issues (became CEP)
Contemporary Economic Policy
Finance and Development
of Development Economics
of Economic Literature
of Economic Perspectives
of International Economics
of Money, Credit and Banking
of Monetary Economics
of Political Economy
Princeton University Press
Quarterly Journal of Economics
Annual Bank Conference on Development Economics
Bank Economic Review
Bank Research Observer
Reference and review:
Morris (1998) The
Asian Financial Crisis, Institute for International
Economics, Policy Analyses in International Economics #55, Washington DC
Barry (1999) Toward a New International Financial Architecture
Inst for International Economics, Wash D.C. (www.iie.com)
Agenor, Pierre-Richard and Peter
Montiel (1999) Development Macroeconomics 2nd Ed,
Margaret G. (1987) Balance of Payments Adjustment, 1945-86, IMF,
James (2002) The Silent Revolution: the IMF 1979-1989
(IMF, Washington D.C.)
Razin (1996) Fiscal
Policies & Growth in a World Economy, 3rd ed. MIT Press
and F.L. Helmers (1988) The Open Economy:
Tools for Policymakers in Open
Economies,Oxford University Press.
(1993) Stabilization, Debt and Reform, Prentice-Hall.
ed. (1993) Policymaking in the Open Economy, OUP
Adjustment and Poverty in LDCs (formerly Stabilization Policy) Fall 2012
requirements: The midterm and final exam account for 70%
of the course grade (25%
Several problem sets, participation in the class IMF-DSK debate, and a
brief crisis case
study/presentation counts for the remaining 30% of the course
grade. The weight of the take-home
midterm can be reduced if students present their
case studies to the class for further discussion.
requirements Walsh Library Reserve List Commanding Heights Episode 3 Stabilization classic quotes
Office Hours in E-527 Dealy: Wed
4:30 to 6pm and 9:30-10:30pm and
confirm office hours by email the same day if possible, firstname.lastname@example.org.
I am not in my office call 914 661-6998 (cell).
Check my web page for updates, travel
Recommended PhD: Agénor, Pierre-Richard (2004) Adjust & Growth 2nd
(not 1st edition) Harvard Univ
Press, 0674015789 Introduction (PhD
as in ECGA 6470 Growth and Development)
Agénor, Pierre-Richard and Montiel
(2010) Macroeconomics for Developing
Edition, Princeton University Press. See chart below for prices, formats.
Recommended Masters: 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