A Countercyclical Framework for a Development-Friendly IFA

José Antonio Ocampo and Stephany Griffith-Jones

Chapter 2 in Macroeconomic Volatility, Institutions and Financial Architectures, 2008, pp 25-44 from Palgrave Macmillan

Abstract: Abstract The last three decades have seen developing countries, and particularly those more integrated into world financial markets, swing to the rhythm of highly procyclical external financing. Financial volatility has a direct effect on the balance of payments and domestic financial markets, and through them, on domestic economic activity and other macroeconomic variables. In the face of strong swings of private capital markets, developing countries lost ‘policy space’ to adopt autonomous countercyclical macroeconomic policies, and faced difficult challenges in creating deep financial markets. A vicious circle involving procyclical financing, incomplete financial markets and institutions, and constraints on macroeconomic policy emerged. Imperfect financial markets have been a source of volatility, but deep financial markets, improved financial governance structures and countercyclical macroeconomic policies have been difficult to develop in a highly volatile financial environment (Fanelli, 2006). The unfortunate outcome of this dynamic is that ‘twin’ external and domestic financial crises have become far more frequent since the breakdown of Bretton Woods exchange rate arrangements (IMF, 1998; Bordo et al., 2001).

Keywords: Central Bank; Real Exchange Rate; Macroeconomic Policy; Capital Account; Loan Loss (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-59018-2_2

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230590182

DOI: 10.1057/9780230590182_2

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().