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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 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 1st 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, 3rd 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, 2nd 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) 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 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)










Date edition










Rheinhart& Rogoff

This Time is Different











Roubini and Mihm

Crisis Economics, A crash course











Krugman,  Paul

Return of Depression Economics











Sachs and Larrain

Macroeconomics in a global economy











Agenor, Pierre

Economics of Adj & Growth 2nd











Agenor & Montiel

Development Macro Econ 3rd ed












Adjustment 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.


Masters Student






3/ Amazon or dealoz new price does not include shipping or tax.


PhD Student






4/ rent or buy and return.










Recommended, some required reading:

World Bank (2009) Global Development Finance: The Development Potential of Surging Capital Flows, Washington D.C.

Tirole, Jean (2002) Financial Crises, Liquidity and the International Monetary System, Princeton Univ. Press

Eichengreen, Barry (2002) Financial Crises and What to do about them, Oxford U. Press 019257442 (paper)

Frankel, J. and A. Razin (1996) Fiscal Policies and Growth in the World Economy, 3rd ed. MIT Press

            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 OECD countries


Readings by Topic (*required reading **PhD students only): return to topic list

1.      Why is the West doing so much worse than the rest of the world?

               Krugman (2009) return of depression economics, pages 1-22

Rheinhart& Rogoff (2009) Chapter 1


Case study: did global imbalances cause the 2008 crises?  

Michael Dooley, Peter Garber (2009) Global imbalances and the crisis: A solution in search of a problem

Vox economica, 21 March 2009

             Xafa, Miranda (2008) Global Imbalances: do they matter?  Cato Journal, Winter vol. 27, number 1.

               Yes, somewhat: 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


2.       Distributional Impacts of the Current Financial Crisis:

World Bank Global Monitoring Report: factsheet on impact of global crisis on poor

UNICEF Ronald Mendoza (2009) Aggregate Shocks, Poor Household and Children: Transmission

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 industry etc.…)


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)

-        Currency depreciation in Mexico, Brazil, Nigeria,

-        Scaling up aid (World Bank President Robert Zoellick’s Vulnerability Fund)

-        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)


4. Classical 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

                S&L (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 and 8.1-8.3  

                Obstfeld and 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

                              Aziz & Dunaway (2007) China’s Rebalancing Act

Edwards, 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 NBER           

            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

               Gupta, Sangeev et. al (2005) Macro Challenges of Scaling up Aid to Africa (Chapters *1 & *2)

               Demekas et. 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) 

Paul Collier and Anke Hoeffler (2001) Aid, Policy and Growth in Post-Conflict Societies

Gupta, Sangeev, R. Powell and Y. Yang (2006) Macroeconomic Challenges of Scaling up Aid to Africa,

A checklist for Practitioners, IMF, Washington DC.

Haacker, M. (2004) The Macroeconomics of HIV/AIDS, IMF, Washington D.C.

               Elbadawi, I. A., Kaltani, L & K. Schmidt-Hebbel (2007) “Post-Conflict Aid, Real Exchange Rate Adjustment,

and Catch-up Growth”, World Bank Policy Research Working Paper 4187,

Hausmann, R and D. Rodrik (2003) Discovering El Salvador’s growth potential

Arndt, C., Sam Jones and Finn Tarp (2006) “Aid and Development: The Mozambican Case

University of Copenhagen, Department of Economics, Discussion Paper 06-13.

8. 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 Macroeconomics”, IADB 

   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 


 9. The 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 Approach

                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]

                Ivanova,(2001)  "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. [CD]

                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

               *Hamann, 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

                 Khan & 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, 1997)

               M .Feldstein, Refocus the IMF, Foreign Affairs – March/April 1998    

                 Stanley Fischer (1998) The IMF and the Asian Crisis  IMF Survey: Fischer Reflects

                              J. Sachs (1997) IMF a power onto itself, FT 12-11-97     Allan Meltzer Interview 2003

                              Goldstein, Morris (2000) Structural Conditionality: How Much is too much?


            Traditional criticisms of the IMF:        

                 Bacha, E. (1987) "IMF Conditionality: Conceptual Problems …" WD 15:12, 1457-67.

                 Spraos, J.(1987) "IMF Conditionality: Misdirected, Ineffectual" Princeton Essays in Int. Finance.

                 Taylor, Lance (1988) Varieties of Stabilization Experience (Oxford Univ Press, NY)

 Buira, A.  (2001) of IMF An Analysis of IMF Conditionality… G24 working paper ??  [CD]

                 Buira,A. (1983)"IMF Financial Programs and Conditionality" JDE 12,111-36. 

12. Currency and Banking Crises: causes and cures.   *Generations of Currency crisis models

          Agénor Chapter 8 (esp. *8.2-8.4)   *Tirole Chapter 1 and *Chapter 2 &3

                        Berg, A. Monetary regime options for Latin America F&D September 2003

          Fischer, Stanley “Is the Bi-Polar View Correct?”  IMF Occasional Paper 193 Fx Regimes

                              Dornbusch, R.(2001) A Primer on Emerging Market Currency Crises  


7.1  1st 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

             Flood, R. 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.

            7.2  2nd Generation Currency Crisis Models—Fixed vs. Flexible Rates:

                   Obstfeld and Rogoff (1996) Section 9.5smaller file for printing

       Calvo, G. & Carmen Reinhart, Capital Flows, Exchange Rates, and Dollarization, F&D, Sept 1999, 13-15.

                       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  

            7.3  3rd Generation Models: Banking and Currency Crisis in Emerging Markets:

                              Notes on Chang and Velasco  *Chang, Roberto and Velasco "The Asia Liquidity Crises"  

*Keller, C. “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, MA.       

                      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]

                        Forbes, Kristina IMF  Global Financial Stability Report--March 2002  (see Box 4.2)

                        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

Daseking, 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 Economics). 

               *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. 69-72

               IMF ICM, 1997 Annex VI, Capital Flows to Emerging Markets—A Historical Perspective 

               IMF,ICM 1998 Annex IV "Chile's experience" [CD]  

                              Corbo and Hernandez (1996) "Adjusting to Capital Inflows: LatAm vs. Asia", WBRO, 11:1, 61-85


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

     *Corbo, V., S. Fischer and S.B. Webb (1992) Adjust Lending Revisited, Intro [ERes]  

     *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, JDE,36:2,229-42.

       Dornbusch, R, (1990) “Classical Macro and Stabilization” AER, 80:2, 143-47.

       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 Result

       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:   Case study preparation page

     16.1 Was Asia’s Crisis Different?   return to topic list  

               Managing Financial Crises: the Case of East Asia (IMF 2001)   

               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]

               Radolet, S. & Sachs J (1998) Asia Crisis Diagnosis and Remedies

               IMF ICM, 1998 Chapt. 3, Emerging Markets—Implications of the Asian Crisis [CD]

               Salvatore, Dominick. (1999) “Lessons From the Financial Crisis in Asia”.JPM, 21:3 pp. 283-288.

               Dornbush, R.(1999) “After Asia: New Directions for the International Financial System”. JPM 21:3, 289-310.

               Stiglitz, Joseph E.(1999) “Lessons From East Asia” Journal of Policy Modeling 21:3 311-330.

               Corsetti, Pesenti, and Roubini, N. (1998) "What Caused the Asian Crisis?" at the Asia 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 (

               Edwards, Sebastian (1999) “Crisis Prevention: Lessons from Mexico & Asia” *Part 1&3 (ERes)           

               Eichengreen 2002 “New Lessons from Argentina & Turkey?”  V. Corbo, Chile in the 1990s

            Andrés 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 RERs)

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 1990s     

Mexico Primary Deficit Mexico Fiscal Sustainability  Mexico Spreadsheet

Notable quotes:  return to topics list


Joseph Stiglitz 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.”  

"Globalism's Discontents," The American Prospect v.13 no.1, January 1-14, 2002.


Rudi 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." 

Dornbusch 2001,letter 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 countries,

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

superior equilibrium, which will also be stable. The concept is applied to recent "shock" stabilization programs,

with special reference to Israel, where the economy was credibly shifted from a three-digit inflationary process,

with 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

which some econometric estimates are also given.” From Bruno (1989) "Econometrics and the Design of Reform" 

Econometrica, 57:2, 275-306  


Stabilization Policy Classics

Bacha, E. (1987) "IMF Conditionality: Conceptual Problems, Policy Alternatives" WD 15:12, 1457-67.

Cline, W.R. and Weintraub (1981) Economic Stabilization in developing countries (Brookings)            

Dornbusch, R. (1982) "Stabilization Policies in Develop Ctys: What Have We Learned?" WD, 10:2.

Diaz-Alejandro, C. (1984) "Latin-American Debt: I don't think we are in Kansas Anymore" BPEA,2,335-89.

Diaz-Aleandro, C.F., (1986) "Good-bye Financial Repression, Hello Financial Crash", JDE.

Flood and Garber (1984) Collapsing Exchange Rate Regimes" JIE 17, August, 1-17.

Jolly, Richard (1991) Adjustment with a Human Face”, WD,19:12, Dec.,1807-21.

Krugman, P. (1979) "A Model of Balance of Payments Crisis" JMCB,11, 311-25.

Krugman, P. and L. Taylor (1978) "The Contractionary Effects of Devaluation" JIE,8,445-56. 

Sachs, J. (1985) "External Debt and Macroeconomic Performance” BPEA, 2, pp.523-574.

Taylor, Lance (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

and financial crises. What makes emerging market countries particularly vulnerable to these crises?

What are the special macroeconomic constraints faced by less developed countries?  How can

vulnerable groups 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

“own” adjustment 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 numerous

 crisis of the 1990s? Students of this course will become familiar with the special challenges of

designing and managing macroeconomic policy in developing countries.  

Recommended, Background Reading and Reference:  return to topics      

Pierre Agenor home page

Bruno, Michael et. al. eds. (1991) Lessons of Economic Stabilization and After (MIT Press).

Cardoso, Eliana and Ann Helwege (1992) Latin America's Economy MIT Press, Cambridge MA.

Obstfeld M. & K. Rogoff (1998) Foundations of International Macroeconomics MIT Press.

Frenkel and Razin (1996) Fiscal Policy in the World Economy 2nd ed. (MIT Press)

Corbo, V., S. Fischer and S.B. Webb (1992) Adjustment Lending Revisited:

Policies to Restore Growth, World Bank Symposium, 

Dornbusch, R. and F.L. Helmers (1988) The Open Economy: Tools for Policy Makers in Developing

Countries (Oxford UnivPress)

Dornbusch. R. (1993) Stabilization, Debt and Reform, Prentice-Hall, NJ.

Dornbusch, R. ed. (1993) Policymaking in the Open Economy,Oxford University Press.

Haggard,S. and S. Webb (1994) Voting for Reform: Democracy, Liberalization & Adjustment (Oxford)

IMF, International Capital Markets (ICM) various issues, IMF Washington D.C.

IMF, World Economic Outlook (WEO), various issues, IMF Publications, Washington.D.C.

Mills, Cadman A. and R. Nallari (1992) Analytical Approaches to Stbz & Adjust, EDI Paper #44, WB.

Taylor,Lance (1988) Varieties of Stabilization Experience (Oxford University Press)

World Bank (1997) Private Capital Flows to Developing Countries, (Oxford University Press).


Case Study Sources


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.  

IDB Statistics Page:includes data on trade, social indicators, debt etc. for almost all LatAm ctys.

IDB Research Pagethis InterAmerican Development Bank page includes issues of IPES

an annual “Economic and Social Progress” report on LatAm.

IMF Home Page: Just type a name into the country information box at the bottom of the page…

IMF Publications: Many of these working papers and WEO-ICM publications are available here—

see especially Finance and Development  For useful research summaries and book reviews. 

IMF DSBB PagesStandardized 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. 

World Bank Data PageA wide range of country data—the Cairo data set included on the

CD comes from the growth research page

World Bank Growth Research Page This page provides many useful papers and data sets—

see especially the new Global Development Network database—included on your CD as 

HIPC Web Page:  A number of African countries plus Bolivia, Nicaragua and Honduras

are HIPCs (highly indebted poor countries). 




AER: American Economic Review                           

BPEA: Brookings Papers on Economic Activity

CPI: Contemporary Policy Issues (became CEP)

CEP: Contemporary Economic Policy

F&D: Finance and Development 

IMFSP: IMF Staff Papers

JDE: Journal of Development Economics     

JEG: Journal of Economic Growth                

JEL: Journal of Economic Literature

JEP: Journal of Economic Perspectives

JIE: Journal of International Economics

JMCB: Journal of Money, Credit and Banking         

JME: Journal of Monetary Economics

JPE: Journal of Political Economy

PUP: Princeton University Press

QJE: Quarterly Journal of Economics           

WB ABCDE Annual Bank Conference on Development Economics

WB: World Bank

WBER: World Bank Economic Review

WBRO: World Bank Research Observer

WD: World Development

Reference and review:

Goldstein, Morris (1998) The Asian Financial Crisis, Institute for International

          Economics, Policy Analyses in International Economics #55, Washington DC

Eichengreen, Barry (1999) Toward a New International Financial Architecture

            Inst for International Economics, Wash D.C.  (

Agenor, Pierre-Richard and Peter Montiel (1999) Development Macroeconomics 2nd Ed, PUP.

de Vries, Margaret G. (1987) Balance of Payments Adjustment, 1945-86,  IMF, Washington DC.

Boughton, James (2002) The Silent Revolution: the IMF 1979-1989 (IMF, Washington D.C.)

Frankel & Razin (1996) Fiscal Policies & Growth in a World Economy, 3rd ed. MIT Press (F&R)

Dornbusch, R. and F.L. Helmers (1988) The Open Economy:

Tools for Policymakers in Open Economies,Oxford University Press.

Dornbusch. R. (1993) Stabilization, Debt and Reform, Prentice-Hall.

Dornbusch, R. ed. (1993) Policymaking in the Open Economy, OUP


ECGA-5450: Crises, Adjustment and Poverty in LDCs (formerly Stabilization Policy)    Fall 2012


Course requirements: The midterm and final exam account for 70% of the course grade (25%

and 45%).  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. 

Course Description   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 appointment:

please confirm office hours by email the same day if possible, 

If I am not in my office call 914 661-6998 (cell). Check my web page for updates, travel

etc. Thank you.  


Recommended PhD: Agénor, Pierre-Richard (2004) Adjust & Growth 2nd edition

            (not 1st edition) Harvard Univ Press,  0674015789  Introduction  (PhD students: same

            Book as in ECGA 6470 Growth and Development)

           Agénor, Pierre-Richard and Montiel (2010) Macroeconomics for Developing Countries

               3rd 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