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Are Immigrant Remittance Flows a Source of Capital for Development?
The role of remittances in development and economic growth is not well understood. This is partly because the literatures on the causes and effects of remittances remain separate. We develop a framework that links the motivation for remittances with their effect on economic activity. Because remittances take place under asymmetric information and economic uncertainty, there exists a significant moral hazard problem. The implication is that remittances have a negative effect on economic growth. We test this prediction using panel methods on a large sample of countries. The results indicate that remittances do have a negative effect on economic growth, which indicates that the moral hazard problem in remittances is severe.
Making Monetary Policy More Effective
The paper looks at the challenges of conducting monetary policy in a context of high dollarization of the banking system and weak institutions in the Democratic Republic of the Congo. The empirical analysis confirms the limited effectiveness of the Central Bank of Congo in controlling inflation, despite a rapid policy response to inflation shocks. Options available to enhance the effectiveness of monetary policy are limited. After exploring the pros and cons of different exchange regimes we conclude that strengthening the current monetary policy framework remains the first-best option, given the country’s exposure to frequent terms-of-trade shocks.
Exchange Rate Policy and Debt Crises in Emerging Economies
We explore a model intended to capture the interaction between exchange rate policy, fiscal policy, and outright default on foreign-currency denominated debt. We examine how the exchange rate affects the supply of short-term debt facing the government. We show that under a credible hard peg (currency board), default is a more likely outcome, even without an exceptionally large short-term debt, precisely because a devaluation is not an option. In a more conventional fixed peg, it can be optimal for the government to choose a level of the exchange rate that would be likely to result in partial or complete debt default. Depending on the exchange rate regime, multiple equilibria exist, in one of which the interest rate is high, the exchange rate is overvalued, output is low, and default is high. Under a hard peg, there is a unique equilibrium.
Ghana
EXECUTIVE SUMMARY Context. The emergence of large fiscal and external imbalances in recent years, which led to a slowdown in growth, is putting Ghana’s medium-term prospects at risk. The Government’s efforts to achieve fiscal consolidation since mid-2013 have been undermined by policy slippages, external shocks and rising interest cost. Until mid- 2014, the net international reserves position had further weakened and the exchange rate depreciated sharply, fueling inflationary pressures. The situation has stabilized on the back of the Eurobond issued in September and a short-term loan contracted by the Cocoa Board, but public debt continued to rise at an unsustainable pace. Extended Credi...
Republic of Madagascar
This paper examines Madagascar’s Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Requests for Waiver of Nonobservance of Performance Criteria. Madagascar’s performance under the program was broadly satisfactory, taking into account the impact of the exogenous shocks and corrective actions taken by the authorities. Efforts to bring tax revenue and net foreign assets—the two indicative targets missed at end-June—back on track over the summer were successful. Progress was also made in structural reform, although with some delays.
Financial Stability Reports
The global financial crisis has renewed policymakers' interest in improving the policy framework for financial stability, and an open question is to what extent and in what form should financial stability reports be part of it. We examine the recent experience with central banks' financial stability reports, and find?despite some progress in recent years?that forward-looking perspective and analysis of financial interconnectedness are often lacking. We also find that higher-quality reports tend to be associated with more stable financial environments. However, there is only a weak empirical link between financial stability report publication per se and financial stability. This suggests room for improvement in terms of the quality of financial stability reports.
Migration and Remittances During the Global Financial Crisis and Beyond
During the 2008 financial crisis, the possible changes in remittance-sending behavior and potential avenues to alleviate a probable decline in remittance flows became concerns. This book brings together a wide array of studies from around the world focusing on the recent trends in remittance flows. The authors have gathered a select group of researchers from academic, practitioner and policy making bodies. Thus the book can be seen as a conversation between the different stakeholders involved in or affected by remittance flows globally. The book is a first-of-its-kind attempt to analyze the effects of an ongoing crisis on remittance flows globally. Data analyzed by the book reveals three tre...
Migration and Remittances
Migration in Eastern Europe and Central Asia is relatively large by international standards, driven both by political factors (the 1990 collapse of the Soviet system, ensuing emergence of conflicts and new states, and opening of borders with Europe) and economic factors (abrupt economic deterioration and corresponding search for better employment and living conditions). The report anlayzes the different kinds of migration as well as the policies on both sides of the equation to limit negative side effects (like emargination, criminal activities, and brain drain) and maximize positive ones (increased labor pool for services, remittances, return migration with improved human and financial capital).
Fiscal Politics
Two main themes of the book are that (1) politics can distort optimal fiscal policy through elections and through political fragmentation, and (2) rules and institutions can attenuate the negative effects of this dynamic. The book has three parts: part 1 (9 chapters) outlines the problems; part 2 (6 chapters) outlines how institutions and fiscal rules can offer solutions; and part 3 (4 chapters) discusses how multilevel governance frameworks can help.
Debt Intolerance
This paper introduces the concept of debt intolerance, ' which manifests itself in the extreme duress many emerging markets experience at debt levels that would seem manageable by advanced country standards. We argue that safe' external debt-to-GNP thresholds for debt intolerant countries are low, perhaps as low as 15 percent in some cases. These thresholds depend on a country's default and inflation history. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries. Understanding and measuring debt intolerance is fundamental to assess the problems of debt sustainability, debt restructuring, capital market integration, and the scope for international lending to ameliorate crises. Our goal is to make a first pass at quantifying debt intolerance, including delineating debtors' clubs and regions of vulnerability, on the basis on a history of credit events going back to the 1820s for over 100 countries.
