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The World Bank Economic Review Advance Access published online on October 4, 2007
The World Bank Economic Review, doi:10.1093/wber/lhm017
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© The Author 2007. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Macroeconomic Volatility and Welfare in Developing Countries: An Introduction

Norman V. Loayza, Romain Rancière, Luis Servén, and Jaume Ventura

Norman V. Loayza (corresponding author) is a lead economist at the World Bank; his email address is nloayza{at}worldbank.org
Romain Rancière is an economist at the International Monetary Fund; his email address is rranciere{at}imf.org
Luis Servén is a research manager at the World Bank; his email address is lserven{at}worldbank.org
Jaume Ventura is a researcher at the Centre de Recerca en Economia Internacional (CREI) and professor of economics at Universitat Pompeu Fabra; his email address is jaume.ventura{at}upf.edu

Macroeconomic volatility, both a source and a reflection of underdevelopment, is a fundamental concern for developing countries. Their high aggregate instability results from a combination of large external shocks, volatile macroeconomic policies, microeconomic rigidities, and weak institutions. Volatility entails a direct welfare cost for risk-averse individuals, as well as an indirect one through its adverse effect on income growth and development. This article provides a brief overview of the recent literature on macroeconomic volatility in developing countries, highlighting its causes, consequences, and possible remedies. It then introduces the contributions of a recent conference on the subject, sponsored by the World Bank and Pompeu Fabra University, Barcelona.


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