Knowing, When You Do Not Know : Simulating the Poverty and Distributional Impacts of an Economic Crisis
Economists have long sought to predict how macroeconomic shocks will affect individual welfare. Macroeconomic data and forecasts are easily available when crises strike. But policy action requires not only understanding the magnitude of a macro shock, but also identifying which households or individuals are being hurt by (or benefit from) the crisis. Moreover, in many cases, impacts on the ground might be already occurring as macro developments become known, while micro level evidence is still unavailable because of paucity of data. Because of these reasons, a comprehensive real-time understanding of how the aggregate changes will translate to impacts at the micro level remains elusive. This problem is particularly acute when dealing with developing countries where household data is sporadic or out of date. This volume outlines a more comprehensive approach to the problem, showcasing a micro simulation model, developed in response to demand from World Bank staff working in countries and country governments in the wake of the global financial crisis of 2008-09. During the growing catastrophe in a few industrialized countries, there was rising concern about how the crisis would affect the developing world and how to respond to it through public policies. World Bank staff s was scrambling to help countries design such policies; this in turn required information on which groups of the population, sectors and regions the crisis would likely affect and to what extent. The volume is organized as follows. Chapter 1 summarizes the methodology underlying the micro simulation model to predict distributional impacts of the crisis, along with several case studies that highlight how the model can be used in different country contexts. Chapters 2 to 4 are written by experts external to the Bank, two of whom participated as discussants at a workshop on the micro simulation work organized in May, 2010 at the World Bank headquarters. Chapter 2 comments on the broader implications and shortcomings of applying the technique described in Chapter 1 and the ability or willingness of governments to respond adequately to its results. Chapter 3 draws parallels between the United States and developing countries to discuss the lessons that can be learned for mitigating the impacts of future crises. Chapter 4 discusses how the micro simulation approach can be sharpened to make it a better tool for distributional analysis moving forward.
Summary: | Economists have long sought to predict
how macroeconomic shocks will affect individual welfare.
Macroeconomic data and forecasts are easily available when
crises strike. But policy action requires not only
understanding the magnitude of a macro shock, but also
identifying which households or individuals are being hurt
by (or benefit from) the crisis. Moreover, in many cases,
impacts on the ground might be already occurring as macro
developments become known, while micro level evidence is
still unavailable because of paucity of data. Because of
these reasons, a comprehensive real-time understanding of
how the aggregate changes will translate to impacts at the
micro level remains elusive. This problem is particularly
acute when dealing with developing countries where household
data is sporadic or out of date. This volume outlines a more
comprehensive approach to the problem, showcasing a micro
simulation model, developed in response to demand from World
Bank staff working in countries and country governments in
the wake of the global financial crisis of 2008-09. During
the growing catastrophe in a few industrialized countries,
there was rising concern about how the crisis would affect
the developing world and how to respond to it through public
policies. World Bank staff s was scrambling to help
countries design such policies; this in turn required
information on which groups of the population, sectors and
regions the crisis would likely affect and to what extent.
The volume is organized as follows. Chapter 1 summarizes the
methodology underlying the micro simulation model to predict
distributional impacts of the crisis, along with several
case studies that highlight how the model can be used in
different country contexts. Chapters 2 to 4 are written by
experts external to the Bank, two of whom participated as
discussants at a workshop on the micro simulation work
organized in May, 2010 at the World Bank headquarters.
Chapter 2 comments on the broader implications and
shortcomings of applying the technique described in Chapter
1 and the ability or willingness of governments to respond
adequately to its results. Chapter 3 draws parallels between
the United States and developing countries to discuss the
lessons that can be learned for mitigating the impacts of
future crises. Chapter 4 discusses how the micro simulation
approach can be sharpened to make it a better tool for
distributional analysis moving forward. |
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