Kangni Kpodar, Patrick Imam, 08 May 2017

The debate over regional trade agreements is ongoing. It has been argued that they can heighten exposure to shocks as they lead to more specialisation, and conversely that they can alleviate volatility by improving policy coordination within the anchors of a formal trade contract. This column suggests that the benefits from lowering long-term growth volatility tend to dominate potential costs, with the magnitude of this effect depending on the depth of the regional integration and the development stage of trade partners. 

, 09 December 2016

Economic shocks can turn into crises if they are of large magnitudes and long-lasting. In this video, Andrés Solimano discusses the case of Chile, in order to identify the mechanisms needed to avoid shocks turning into crises. This video was recorded at the UNU-WIDER Development Conference in September 2016.

Antonio Fatás, Lawrence Summers, 12 October 2016

Conventional wisdom on supply and demand suggests that demand shocks are cyclical or transitory, and that only technology shocks are responsible for trend changes. This column argues that cyclical events can have permanent effects on demand, and therefore GDP. It is time for policymakers to start considering the possibility of hysteresis seriously.

Galina Hale, Tümer Kapan, Camelia Minoiu, 28 April 2016

Since the Global Crisis, cross-border lending among banks and its role in the transmission of financial shocks have gained a lot of attention. This column describes evidence from direct and indirect lending exposures among a large number of banks. The findings show that a larger number of exposures to banks in countries experiencing a systemic banking crisis reduces profitability and the supply of new credit. Both direct and indirect connections have economically significant effects, supporting the notion that interconnected systems are prone to shock transmission.

Roel Beetsma, Siert Vos, 23 February 2016

There is a broad consensus that banks and insurance companies may contribute to systemic risk in the financial system. For other financial market institutions, it is less clear-cut. This column examines the resilience of pension funds to severe shocks. While the evidence indicates that they are of low systematic importance, policy trends that apply to all financial players may undermine this. Specifically, risk-based solvency requirements carry the risk of homogenising the behaviour of all players, potentially amplifying shocks and destabilising markets.

Matthieu Bussière, Claude Lopez, Cédric Tille, 07 August 2015

Exchange rate appreciations could potentially have a damaging effect on competiveness and domestic production. This column argues that the relationship between exchange rate appreciations and growth depends on the underlying shock. Appreciations due to the surge of capital inflows could be relatively less favourable for growth. Concern about appreciations is therefore well-founded when they are due to shocks in global financial markets.

Stephanie Schmitt-Grohe, Martín Uribe, 20 July 2015

In the past few years, the world has witnessed large swings in world relative prices, from oil, to metals, to food prices. This column examines how important these terms-of-trade shocks are in explaining GDP fluctuations. Using structural vector autoregression analysis, it shows that terms-of-trade shocks account for no more than 10% of business-cycle fluctuations in the majority of poor and emerging countries.

Gert Peersman, Wolf Wagner, 05 July 2015

The events of recent years have made it all too clear that we need to better understand the links between the financial sector and the real economy. This column explores financial sector shocks and real economy shocks and presents new evidence suggesting that financial shocks are a significant source of macroeconomic fluctuations. Policymakers need to better take into account the role of the financial system when predicting the future and when readying remedies.

Julian di Giovanni, Andrei Levchenko, Isabelle Méjean, 16 November 2012

What difference does the release of the iPhone 5 really make to the US economy? This column argues that idiosyncratic shocks to individual firms significantly contribute to aggregate fluctuations. Using empirical evidence from France, this column argues that shocks to the largest firms, combined with firm-to-firm linkages, can travel far beyond the sector and country of origin.

Fabrizio Coricelli, 18 July 2008

Financial development is key to an economy’s long-run growth. This column argues that it is asymmetrically important – while not key to economic expansion, financial development is a critical shock absorber that helps prevent sharp economic contractions. Moreover, avoiding such drops improves long-run growth prospects.