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A developing country view of the current global crisis: what should not be forgotten and what should be done

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  • Roberto Frenkel
  • Martin Rapetti

Abstract

Macroeconomic theory will surely be affected by the current global crisis. There are signs that some 'old' theories and insights will have a comeback. This paper argues that among them economists should not forget the lessons that have been learnt from three decades of several financial crises in developing countries. We emphasise two important lessons. First, preventing crises in developing countries requires not only the regulation of domestic financial systems, but also a consistent set of macroeconomic policies. In particular we stress the need for consistency between the exchange rate rule, the capital account regime and the domestic financial market regulations. Second, financial crises in developing countries tend to worsen both the balance of payments and the fiscal balance. Traditional adjustment policies tend to exacerbate the recessive trends in output and employment. This is just the opposite of what is required and what governments in developed countries are able to do. Developing countries should push for an agenda that helps them deal with these problems. Copyright The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

Volume (Year): 33 (2009)
Issue (Month): 4 (July)
Pages: 685-702

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Handle: RePEc:oup:cambje:v:33:y:2009:i:4:p:685-702

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Cited by:
  1. Alberto Bagnai, 2013. "Unhappy families are all alike: Minskyan cycles, Kaldorian growth, and the Eurozone peripheral crises," a/ Working Papers Series 1301, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  2. Giulio Cainelli & Sandro Montresor & Giuseppe Vittucci Marzetti, 2012. "Production and financial linkages in inter-firm networks: structural variety, risk-sharing and resilience," Journal of Evolutionary Economics, Springer, vol. 22(4), pages 711-734, September.
  3. Juan Antonio Montecino & Jose Antonio Cordero, 2010. "Capital Controls and Monetary Policy in Developing Countries," CEPR Reports and Issue Briefs 2010-10, Center for Economic and Policy Research (CEPR).
  4. Damill, Mario & Frenkel, Roberto, 2012. "Macroeconomic Policies, Growth, Employment, and Inequality in Latin America," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Alberto Bagnai, 2014. "Un external compact per rilanciare l'Europa," a/ Working Papers Series 1401, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  6. Fernando Andrés Delblanco & Andrés Fioriti, 2012. "Volatility of the Capital Flows and Structural Breaks in Latin America and the Caribbean," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 23-51, January-D.
  7. Brixiova, Zuzana & Vartia, Laura & Wörgötter, Andreas, 2010. "Capital flows and the boom-bust cycle: The case of Estonia," Economic Systems, Elsevier, vol. 34(1), pages 55-72, March.
  8. ULGEN, Faruk, 2010. "Crise systémique et régulation financière
    [Systemic crisis and financial regulation]
    ," MPRA Paper 35466, University Library of Munich, Germany.
  9. Martín Rapetti, 2013. "The Real Exchange Rate and Economic Growth: Some Observations on the Possible Channels," UMASS Amherst Economics Working Papers 2013-11, University of Massachusetts Amherst, Department of Economics.
  10. S. Devrim Yilmaz & Burak Saltoglu, 2013. "Why is it so Difficult and Complex to Solve the Euro Problem?," Centre for Growth and Business Cycle Research Discussion Paper Series 180, Economics, The Univeristy of Manchester.
  11. Frenkel, Roberto & Rapetti, Martín, 2012. "Exchange rate regimes in the major Latin American countries since the 1950s: lessons from history," Revista de Historia Económica, Cambridge University Press, vol. 30(01), pages 157-188, March.
  12. Roberto Frenkel & Martin Rapetti, 2012. "External Fragility or Deindustrialization: What is the Main Threat to Latin American Countries in the 2010s?," World Economic Review, World Economics Association, vol. 2012(1), pages 3, September.
  13. Peter Skott & Martin Rapetti & Arslan Razmi, 2012. "Real exchange rates and the long-run effects of aggregate demand in economies with underemployment," UMASS Amherst Economics Working Papers 2012-06, University of Massachusetts Amherst, Department of Economics.
  14. Sergio Cesaratto, 2012. "Controversial and novel features of the Eurozone crisis as a balance of payment crisis," Department of Economics University of Siena 640, Department of Economics, University of Siena.
  15. Yoji Koyama, 2010. "Economic Crisis In New Eu Member States In Central And Eastern Europe: Focusing On Baltic States," Romanian Economic Business Review, Romanian-American University, vol. 5(3), pages 31-55, September.

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