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Output Drops and the Shocks That Matter

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  • Paolo Mauro
  • Törbjörn I. Becker

Abstract

Output drops are usually associated with major disruption for the residents of affected countries, both directly and often through ensuing, prolonged growth slowdowns. Using a century of data, we document that output drops are more frequent in countries at a lower stage of economic development. We then turn to a more in-depth analysis of the post-1970 era, examining output drops in a large panel of countries, and systematically relating them to a variety of shocks. We compute the expected cost of each type of shock as a function of the shock''s frequency, the likelihood that the shock will be associated with a drop in output, and the size of the output drop. The largest costs are associated with external financial shocks (notably, sudden stops in financial flows) for emerging markets, and with real external shocks (in particular, terms-of-trade shocks) for developing countries.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/172.

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Length: 43
Date of creation: 01 Jul 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/172

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Related research

Keywords: External shocks; Economic growth; Capital flows; Emerging markets; Trade; terms of trade; debt crises; currency crises; global shocks; debt crisis; currency crisis; trade shocks; trade shock; terms of trade shocks; oil shock; current account; output growth; per capita income; output volatility; terms-of-trade shocks; short-term debt; political economy; trade changes; current account deficit; world economy; external financial shocks; income elasticities; trade integration; sovereign debt crises; endogenous growth; trading partner; international standards; oil prices; exporting countries; external shock; commodity prices; sovereign debt; central bank; importing goods; open economies;

References

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