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Zooming in : from aggregate volatility to income distribution

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  • Calderon, Cesar
  • Yeyati, Eduardo Levy

Abstract

In contrast with a growing literature on the drivers of aggregate volatility in developing countries, its consequences in terms of individual incomes have received less attention. This paper looks at the impact of cyclical output fluctuations and extreme output events (crises) on unemployment, poverty, and inequality. The authors find robust evidence that aggregate volatility has a regressive, asymmetric, and non linear impact, as reflected in the strong influence of extreme output drops. The findings show that, in addition to the mitigating role of personal wealth, public expenditure and labor protection exert a similar benign effect. These findings are in line with the income substitutions view of social safety nets, and cast a new light on the value of social programs and labor market regulation in crisis prone developing countries.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4895.

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Date of creation: 01 Apr 2009
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Handle: RePEc:wbk:wbrwps:4895

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Keywords: Economic Conditions and Volatility; Emerging Markets; Economic Theory&Research; Inequality;

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  1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  2. M. Ayhan Kose & Eswar S. Prasad & Marco E. Terrones, 2005. "Growth and Volatility in an Era of Globalization," IMF Staff Papers, Palgrave Macmillan, vol. 52(si), pages 31-63.
  3. Levy-Yeyati, Eduardo & Sturzenegger, Federico & Gluzmann, Pablo, 2007. "Fear of Appreciation," MPRA Paper 42917, University Library of Munich, Germany, revised Nov 2012.
  4. Easterly, William & Loayza, Norman & Montiel, Peter, 1997. "Has Latin America's post-reform growth been disappointing?," Policy Research Working Paper Series 1708, The World Bank.
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  7. Martín González Rozada & Eduardo Levy Yeyati, 2006. "Global Factors and Emerging Market Spreads," IDB Publications 6703, Inter-American Development Bank.
  8. Breen, R. & Garcia-Penalosa, C., 1999. "Income Inequality and Macroeconomic Volatility: an Empirical Investigation," G.R.E.Q.A.M., Universite Aix-Marseille III 99b11, Universite Aix-Marseille III.
  9. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers, Institute for Fiscal Studies W95/17, Institute for Fiscal Studies.
  10. Eduardo A. Cavallo, 2007. "Output Volatility and Openness to Trade: A Reassessment," Research Department Publications 4518, Inter-American Development Bank, Research Department.
  11. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2006. "Growth volatility and financial liberalization," Journal of International Money and Finance, Elsevier, vol. 25(3), pages 370-403, April.
  12. Vivek Arora & Athanasios Vamvakidis, 2005. "How Much Do Trading Partners Matter for Economic Growth?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 24-40, April.
  13. Paolo Mauro & Törbjörn I. Becker, 2006. "Output Drops and the Shocks That Matter," IMF Working Papers 06/172, International Monetary Fund.
  14. Agenor, Pierre-Richard, 2002. "Macroeconomic adjustment and the poor : analytical issues and cross-country evidence," Policy Research Working Paper Series 2788, The World Bank.
  15. Gabriela Inchauste & Ana Corbacho & Mercedes Garcia-Escribano, 2003. "Argentina," IMF Working Papers 03/89, International Monetary Fund.
  16. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
  17. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 02/4, International Monetary Fund.
  18. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  19. Kraay, Aart, 2006. "When is growth pro-poor? Evidence from a panel of countries," Journal of Development Economics, Elsevier, vol. 80(1), pages 198-227, June.
  20. Checchi, Daniele & Garcia-Penalosa, Cecilia, 2004. "Risk and the distribution of human capital," Economics Letters, Elsevier, vol. 82(1), pages 53-61, January.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. ¿Qué he hecho yo para merecer esto? Crecimiento latinoamericano y viento global
    by Luciano in Economista Serial Crónico on 2011-12-01 00:58:00
  2. ¿Qué he hecho yo para merecer esto? Crecimiento latinoamericano y viento global
    by Eduardo Levy-Yeyati in Foco Económico on 2011-11-30 12:00:00
  3. Volatility Drives Income Inequality
    by vngalasso in Toppling Inequality on 2012-09-08 12:56:43

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