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How Can the Crisis Vulnerability of Emerging Economies Be Reduced?

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How Can the Crisis Vulnerability of Emerging Economies Be Reduced? F65-22-5-2014_F65.qxd 23.05.2014 11:00 Seite 1 65 ifo Forschungsberichte How Can the Crisis Vulnerability of Emerging Economies Be Reduced? Klaus Abberger Biswa Nath Bhattacharyay Chang Woon Nam Gernot Nerb Siegfried Schoenherr Institute Leibniz Institute for Economic Research at the University of Munich Ifo Center for International Institutional Comparisons and Migration Research How Can the Crisis Vulnerability of Emerging Economies Be Reduced? Klaus Abberger Biswa Nath Bhattacharyay Chang Woon Nam Gernot Nerb Siegfried Schoenherr May 2014 Institute Leibniz Institute for Economic Research at the University of Munich Ifo Center for International Institutional Comparisons and Migration Research Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar ISBN 978-3-88512-553-2 Alle Rechte, insbesondere das der Übersetzung in fremde Sprachen, vorbehalten. Ohne ausdrückliche Genehmigung des Verlags ist es auch nicht gestattet, dieses Buch oder Teile daraus auf photomechanischem Wege (Photokopie, Mikrokopie) oder auf andere Art zu vervielfältigen. © ifo Institut, München 2014 Druck: ifo Institut, München ifo Institut im Internet: http://www.cesifo-group.de List of Content 1. Research Questions and Report Structure ..................................................................... 6 2. Typologies for Different Economic Crises and Relevance for Emerging Countries .. 7 2.1 Crisis Types and Vulnerability ............................................................................................ 7 2.2 Cyclical, Financial and Structural Crises .......................................................................... 10 2.3 Overview and Classification of More Recent Historical Crises ....................................... 12 2.4 Contagion and the Prevailing Danger for Emerging Economies ...................................... 15 2.5 Conclusions ....................................................................................................................... 17 2.6 Theses ................................................................................................................................ 17 3. Impact of Crises on Economic and Social Indicators of Emerging Economies, Conclusions for Crisis Management and Policy Recommendations .......................... 18 3.1 Conceptual Basis for Case Study Selection ...................................................................... 18 3.2 The Asian Crisis with Focus on South Korea ................................................................... 19 3.2.1 Impact .............................................................................................................................. 19 3.2.2 Analysis ........................................................................................................................... 21 a) Causes of the Crisis ....................................................................................................... 21 b) Contagion as a Causal Factor ........................................................................................ 23 c) Policy Errors as a Crisis Re-enforcement Factor .......................................................... 25 d) Lessons Learned ............................................................................................................ 26 3.2.3 Conclusions and Policy Recommendations .................................................................... 28 a) Two General Explanation Approaches ......................................................................... 28 b) The Need for Financial Sector Reforms ........................................................................ 28 3.3 Experience of Crises in Latin America with a Focus on Mexico ..................................... 31 a) Impact and Conclusions for Policy Making .................................................................. 32 b) Comparison with Chile .................................................................................................. 34 3.4 Experiences of Eastern European Transformation and Subsequent Financial Crises with a Focus on Estonia .................................................................................................... 34 3.5 Conclusions from a Comparison of Emerging Country Cases ......................................... 38 a) On Crisis Generation ..................................................................................................... 38 b) On Contagion and Confidence (Empirical Assessments) ............................................. 40 c) On Policies .................................................................................................................... 42 3.6 Theses ................................................................................................................................ 43 4. Policy Measures for Crisis Prevention and Crisis Management in Economically Developed Countries with Focus on Germany ............................................................. 45 4.1 Conceptual Basis for Case Study Selection ...................................................................... 46 4.2 Experiences from Germany ............................................................................................... 47 a) German Growth and Stability Law as a Key Crisis Prevention Policy in the 1960s and 1970s .................................................................................................. 47 3 b) Automatic Stabilizers and Public Debt Management ................................................... 50 c) Financial Market Stabilization during the Financial Crisis of 2008/09 ........................ 51 d) Selected Stimulus Measures in the Crisis 2008/09 ....................................................... 52 4.3 Experiences from German Reunification .......................................................................... 55 4.4 Experiences from other Economically Developed Countries ........................................... 58 a) Australia ........................................................................................................................ 58 b) Canada ........................................................................................................................... 60 c) Norway .......................................................................................................................... 61 d) Switzerland .................................................................................................................... 63 4.5 Conclusions from Developed Country Analysis and Repercussions for Emerging Countries .......................................................................................................... 64 4.6 Theses ................................................................................................................................ 68 5. The Importance of Crisis Monitoring and Early Warning Systems .......................... 69 5.1 Conceptual Basis for Selection of Systems ....................................................................... 70 5.2 Important International Institution-based Risk Information Systems and Analysis Concepts ............................................................................................................. 71 a) Monitoring and Early Warning Systems Used by the OECD (Leading Indicators Approach) ..................................................................................... 71 b) Monitoring and Early Warning Systems Used by the EU/Eurostat (Scoreboard Approach) ................................................................................................. 72 c) Monitoring and Early Warning Systems Used by the IMF (Financial Soundness Indicators Approach) ................................................................. 73 d) Monitoring and Early Warning Systems Used by the ESRB (Risk Dashboards) ......... 74 e) Some Further Monitoring/Early Warning Systems Used by Other Institutions ........... 76 5.3 Conclusions ....................................................................................................................... 77 5.4 Theses ................................................................................................................................ 77 6. Summary of Conclusions and Recommendations for Emerging Countries .............. 78 6.1 Changed Crisis Origination ............................................................................................... 78 6.2 Indebtedness and Loss of Financial Credibility as Key Factors for Modern Crisis Vulnerability ..................................................................................................................... 79 6.3 General Crisis Management Concepts .............................................................................. 80 6.4 Specific Policy Instruments ............................................................................................... 82 6.5 Crisis Risk and Performance Monitoring Requirements .................................................. 84 Abbreviations ........................................................................................................................... 86 References ................................................................................................................................ 88 Appendix
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