Responding to Economic Crises: Policy Alternatives for Equitable Recovery and Development

While economic crises are becoming more frequent and severe, our experience in East Asia has demonstrated how the international response to these crises remains inadequate. Appropriate policy responses to economic crises entail three essential dimensions: first, the maintenance of full employment and economic stability through macroeconomic policy; second, complementary structural policy aimed at restoring confidence; and finally, a robust social safety net to mitigate the adverse and potentially long‐term effects of economic downturns. A suitable crisis response requires that policy‐makers recognize the critical role of financial markets and the existence of time lags. Suitable policy responses should consider not only an individual economy’s ability to absorb shocks, but also the asymmetries and nonlinearities of alternative policies. As we thus seek to improve our macroeconomic and structural policies for the future prevention and mitigation of crises, it is critical that we bear in mind the protection of the most vulnerable segments of society from the crises that will inevitably occur.