Essays in Honor of Lance Taylor
Edited by Amitava Krishna Dutt
Chapter 19: Developing countries' anti-cyclical policies in a globalized world
19. Developing countries’ anti-cyclical policies in a globalized world José Antonio Ocampo* The volatility and contagion characteristic of international ﬁnancial markets, which dominated emerging economies during the 1990s, have deep historical roots.1 Indeed, from the mid-1970s to the end of the 1980s, Latin America and many other regions in the developing world experienced a long boom–bust cycle, the most severe of its kind since that of the 1920s and 1930s. The shortening but also the intensity of boom–bust cycles have been distinctive features of the 1990s. The latter is reﬂected, in the words of the Chairman of the Federal Reserve Board, in the fact that the ‘size of the breakdowns and required oﬃcial ﬁnance to counter them is of a diﬀerent order of magnitude than in the past’ (Greenspan, 1998). Viewed from the perspective of developing countries, the essential feature of instability is the succession of periods of intense capital inﬂows, in which ﬁnancial risks signiﬁcantly increase, facilitated and sometimes enhanced by pro-cyclical domestic macroeconomic policies, and the latter phases of adjustment, in which these risks are exposed and the pro-cyclical character of the measures adopted to ‘restore conﬁdence’ amplify the ﬂow (economic activity) and stock (portfolio) eﬀects of adjustment processes. An essential part of the solution to these problems lies in strengthening the institutional framework to prevent and manage ﬁnancial crises at the global level.2 This chapter, however, looks at the role of developing countries’ domestic policies in managing externally...
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