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Zooming in : from aggregate volatility to income distribution

Author

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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.

Suggested Citation

  • Calderon, Cesar & Yeyati, Eduardo Levy, 2009. "Zooming in : from aggregate volatility to income distribution," Policy Research Working Paper Series 4895, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4895
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    References listed on IDEAS

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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 06:58:00
    2. ¿Qué he hecho yo para merecer esto? Crecimiento latinoamericano y viento global
      by Eduardo Levy-Yeyati in Foco Económico on 2011-11-30 18:00:00
    3. Volatility Drives Income Inequality
      by vngalasso in Toppling Inequality on 2012-09-08 17:56:43

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    3. Calderón, César & Fuentes, J. Rodrigo, 2014. "Have business cycles changed over the last two decades? An empirical investigation," Journal of Development Economics, Elsevier, vol. 109(C), pages 98-123.
    4. Chang, Shinhye & Gupta, Rangan & Miller, Stephen M. & Wohar, Mark E., 2019. "Growth volatility and inequality in the U.S.: A wavelet analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 521(C), pages 48-73.
    5. Franziska Bremus & Claudia M. Buch, 2015. "Banking Market Structure and Macroeconomic Stability: Are Low-Income Countries Special?," Pacific Economic Review, Wiley Blackwell, vol. 20(1), pages 73-100, February.
    6. Calderon, Cesar & Fuentes, Rodrigo, 2010. "Characterizing the business cycles of emerging economies," Policy Research Working Paper Series 5343, The World Bank.
    7. Mohsen Bahmani‐Oskooee & Mehrnoosh Hasanzade, 2022. "Policy uncertainty and income distribution: Asymmetric evidence from state‐level data in the United States," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 179-220, January.

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