Managing East Asia's Macroeconomic Volatility

East Asia has experienced a dramatic decrease in output growth volatility over the past 20 years. This is good news, as output growth volatility affects poor households because of coping strategies that have long-term, harmful consequences, and the overall economy through its negative impact on economic growth. This paper investigates the factors behind this long decline in volatility, and derives lessons about ways to mitigate renewed upward pressure in face of the financial crisis. The authors show that if, on the one hand, high trade openness has sustained economic growth in the past several decades, on the other hand, it has made countries more vulnerable to external fluctuations. Although less frequent terms of trade shocks and more stable growth rates of trading partners have helped to reduce volatility in the past, the same external factors are now putting renewed pressure on volatility. The way forward seems therefore to be to counterbalance the external upward pressure on volatility by improving domestic factors. Elements under domestic control that can help countries deal with high volatility include more accountable institutions, better regulated financial markets, and more stable fiscal and monetary policies.

Bibliographic Details

Main Authors:	Olaberria, Eduardo, Rigolini, Jamele
Language:	English
Published:	2009-07-01
Subjects:	ADVERSE EFFECTS, AGGREGATE OUTPUT, ALLOCATION OF RESOURCES, AMERICAN ECONOMIC REVIEW, ASSETS, AVERAGE GROWTH, AVERAGE GROWTH RATE, AVERAGE LEVEL, BANK SUPERVISION, BANKING, BANKING CRISIS, BANKRUPTCY, BOND, BORROWERS, BUSINESS CYCLE, BUSINESS CYCLES, BUSINESS PRACTICES, CAPITA GROWTH, CAPITAL FLOWS, CAPITAL INFLOWS, CENTRAL BANK, CENTRAL BANKS, COMMODITY, COMMODITY PRICES, COMPARATIVE ADVANTAGE, CONSUMER PRICE, CONSUMER PRICE INDEX, CONSUMPTION GROWTH, CONSUMPTION VOLATILITY, CREDITOR, CRISIS, CRISIS VOLATILITY, CROSS COUNTRY, CROSS COUNTRY EVIDENCE, CYCLICAL FISCAL POLICY, CYCLICAL VOLATILITY, DEPENDENT VARIABLE, DEPOSIT, DEPOSIT INSURANCE, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DISCRETIONARY POLICIES, DIVERSIFICATION, DOMESTIC CREDIT, DUTCH DISEASE, DYNAMIC PANEL, EARNINGS, ECONOMETRIC EVIDENCE, ECONOMIC ACTIVITY, ECONOMIC CRISES, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC MODELS, ECONOMIC OUTLOOK, ECONOMIC PERFORMANCE, ECONOMIC POLICY, ECONOMIC SHOCKS, ECONOMIC UNCERTAINTY, EFFECT OF RECESSIONS, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET BUSINESS, EMERGING MARKETS, EQUITY, ERROR TERM, ESTIMATED REDUCTION, ESTIMATION METHOD, EXCHANGE, EXCHANGE RATE, EXOGENOUS SHOCKS, EXPLANATORY VARIABLES, EXTERNAL CONDITIONS, EXTERNAL FACTORS, EXTERNAL SHOCK, EXTERNAL SHOCKS, EXTERNAL VULNERABILITY, FEDERAL RESERVE, FINANCIAL CRISIS, FINANCIAL DEPTH, FINANCIAL DEVELOPMENT, FINANCIAL FLOWS, FINANCIAL INSTITUTIONS, FINANCIAL MARKETS, FINANCIAL OPENNESS, FINANCIAL STABILITY, FISCAL CONSOLIDATIONS, FISCAL MANAGEMENT, FISCAL POLICIES, FISCAL POLICY, FLUCTUATIONS, FOREIGN CAPITAL, FOREIGN DIRECT INVESTMENTS, FUTURE, GLOBAL BUSINESS, GLOBAL ECONOMY, GLOBALIZATION, GOVERNMENT CONSUMPTION, GOVERNMENT SPENDING, GROWTH, GROWTH PERFORMANCE, GROWTH RATE, GROWTH RATES, GROWTH REGRESSION, GROWTH VOLATILITY, HIGH INCOME, HIGH TRADE OPENNESS, HIGH VOLATILITY, HIGH-INCOME COUNTRIES, HIGHER VOLATILITY, HOUSEHOLD WELFARE, IMPACT OF SHOCKS, INCOME, INCOME RISK, INFLATION, INFLATION EXPECTATIONS, INFLATION RATE, INFLATION TARGETING, INFLATION VOLATILITY, INTERACTION TERMS, INTEREST, INTEREST RATE, INTEREST RATE SHOCKS, INTEREST RATES, INTERNATIONAL INTEREST, INTERNATIONAL INTEREST RATES, INTERNATIONAL MONETARY FUND, INTERNATIONAL PRICES, INTERNATIONAL RESERVES, INVESTMENT, INVESTORS, LABOR MARKET, LAGGED DEPENDENT, LAGGED LEVELS, LAGGED VALUES, LENDER OF LAST RESORT, LEVERAGE, LIBERALIZATION, LINK BETWEEN VOLATILITY, LIQUIDITY, LIQUIDITY CRISES, LOW INCOME, LOW INCOME COUNTRIES, LOW-INCOME COUNTRIES, MACROECONOMIC FLUCTUATIONS, MACROECONOMIC MANAGEMENT, MACROECONOMIC POLICIES, MACROECONOMIC STABILITY, MACROECONOMIC VOLATILITY, MACROECONOMICS, MEDIUM TERM, MIDDLE INCOME, MIDDLE INCOME COUNTRIES, MIDDLE-INCOME COUNTRIES, MONETARY ECONOMICS, MONETARY POLICIES, MONETARY POLICY, MONETARY RESEARCH, MONEY, NATURAL DISASTERS, NEGATIVE EFFECT, NEGATIVE IMPACT, 0 HYPOTHESIS, OPEN ECONOMIES, OPEN ECONOMY, OUTPUT, OUTPUT GROWTH, OUTPUT VOLATILITY, OVERALL VOLATILITY, PER CAPITA GROWTH, POLICY MAKERS, POLICY RESEARCH, POLITICAL ECONOMY, POLITICAL POWER, POLITICAL REGIME, POOR COUNTRIES, POOR HOUSEHOLDS, POVERTY, PRICES, PRIVATE SECTOR, PRODUCTION STRUCTURE, PRUDENTIAL SUPERVISION, RATE OF GROWTH, RECESSIONS, REVERSE CAUSATION, REVIEW OF ECONOMICS, RISK SHARING, ROBUSTNESS CHECK, SAFETY NETS, SCATTER PLOT, SERIAL CORRELATION, SHARE, SIGNIFICANT EFFECT, SIGNIFICANT IMPACT, SOCIAL PROTECTION, STABILIZATION, STABLE GROWTH, STABLE INFLATION, STANDARD DEVIATION, SUM OF IMPORTS, TAX, TAX BASE VARIABILITY, TERMS OF TRADE, TRADE, TRADE GROWTH, TRADE SHOCKS, TRADE VOLUMES, TRADING PARTNERS, UPWARD PRESSURE, VOLATILITIES, VOLATILITY MEASURES, VOLATILITY OF INFLATION, VOLATILITY OF TERMS OF TRADE SHOCKS, WEIGHTS, WORLD DEVELOPMENT INDICATORS, WORLD ECONOMY,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090706140259 https://hdl.handle.net/10986/4180
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