Macroeconomic Policy Issues in Emerging Markets
CEU, Economics Department

Lecturer: György Kopits
Course: 2 credits

This course covers major policy issues in emerging markets, aimed at maintaining domestic and external balance,
and sustained growth, including prevention and cure of crises. Evolution and characteristics of emerging markets.
Determinants of currency, banking, and debt crises. Currency crises (first- and second-generation models) and their
effects, including through contagion and transmission. Banking crises: monetarist, fragility, structural explanations.
Crisis episodes in selected countries. Indicators of vulnerability and debt sustainability problems. Macroeconomic
adjustment programs: timeframe, composition, and sequencing. Policy signaling and structural reform. Controversy
over capital controls. Appropriate policy framework for monetary and fiscal policies. Rules-based policies: arguments,
design, and experience. Conditions for various exchange rate options, ranging from floating to hard peg regimes.
Institutional infrastructure and standards of transparency and accountability (central bank independence, sound
budgetary practices, and financial supervision and regulation). Proposals for a new international financial architecture.

Selected readings

Aziz, J., F. Caramazza, and R. Salgado, “Currency Crisis: in Search of Common Elements,” World Economic
Outlook Supporting Studies (IMF, 2000), pp. 86–128.

Barnhill, T., and G. Kopits, “Assessing Fiscal Sustainability Under Uncertainty,” Journal of Risk, Vol. 6
(Summer 2004), pp. 31-53.

Bordo, M.D., Currency Crises and Banking Crises in Historical Perspective, EHF Research Report No.10
(Institutet foer Eknomisk Historisk Forskning, 1998)

Caprio, F., “Banking on Crisis: Expensive Lessons from Recent Financial Crises,” World Bank Policy Research
Working Paper No. 1979 (September 1998).

Flood, R.P., and N.P. Marion, “Perspectives on the Recent Currency Crisis Literature,” NBER Working Paper
6380 (January 1998).

Frankel, J., “No Single Currency Regime is Right for All Countries and All Times,” NBER Working Paper
7338 (September 1999).

Ghosh, A., and others, IMF-Supported Programs in Capital Account Crises, IMF Occasional Paper 210 (IMF, 2002).

Goldstein, M., G. Kaminsky, and C.M. Reinhart, Assessing Financial Vulnerability: An Early Warning for
Emerging Markets (Institute for International Economics, 2000)

Goldstein, M., “What Might the Next Emerging-Market Financial Crisis Look Like?” Working Paper Series WP 05-7
(Institute for International Economics, July 2005)

Ho, C., and R. McCauley, “Living with Flexible Exchange Rates: Issues and Recent Experience in Inflation Targeting
in Emerging Market Economies,” BIS Working Paper 130 (February 2003)

IMF, World Economic Outlook: Public Debt in Emerging Markets (Sep. 2003), ch. 3.

Kopits, G., “Central European EU Accession and Latin American Integration: Mutual Lessons in Macroeconomic
Policy Design,” North American Journal of Economics and Finance (Dec. 2002), pp. 253-277.

Kopits, G., ed., Rules-Based Fiscal Policy in Emerging Markets: Analysis, Background and Prospects
(Palgrave Macmillan, 2004)

Mishkin, F.S., “Inflation Targeting in Emerging Market Economies,” American Economic Review (May 2000),
pp. 105–109.

M. Mussa and A. Richards, “Capital Flows in the 1990s before and after the Asian Crisis,” Greek Economic Review
(Autumn 2000)

Schaechter, A., M. Stone, and M. Zelmer, Adopting Inflation Targeting: Practical Issues for Emerging Market Countries,
IMF Occasional Paper 202 (IMF, 2000)

Summers, L., “International Financial Crises: Causes, Prevention, and Cures,” American Economic Review,
(May 2000), pp. 1–16.

Final grade:  class participation 40%;  final exam 60%.