Economic Crises, Stabilisation Policy and Output in Emerging Market Economies
Stellenbosch Working Paper Series No. WP20/2009Publication date: 2009
Author(s):
The recent macroeconomic history of emerging market economies is coloured with economic crises of all kinds, ranging from debt-crises, through hyperinflationary periods to currency crises to name but a few. Much of the empirical literature notes that alongside fast-paced structural change this has resulted in volatile business cycles and a difficult environment for stabilisation policy. Both short- and long-run output dynamics are shaped by the multidimensional exposure of EMEs to economic shocks. The paper uses an SVAR analysis and finds that in spite of high degrees of output volatility, the conduct of stabilisation policy has sometimes been successful in dampening short-run output fluctuations. However, even when stabilisation has been successful, the effect on overall output volatility has been negligible when compared to supply-side shocks. The results show that economic crises are associated with large negative supply shocks which are only counteracted by stabilisation policy to a very small extent. These crisis-related supply shocks, in turn, have large negative effects on potential GDP growth, which are only reversible when positive supply shocks regain lost ground. Given the institutional origin of the economic crises, the paper suggests that for stabilisation policy to become more effective in lowering output volatility and maintaining long-term growth potential, it must be supported by appropriate supply-side measures which insulate EMEs against large negative supply shocks and help them to recover in the wake of economic crises.
JEL Classification:C32, E32, E61, E63
Keywords:Economic crises, Stabilisation policy, Emerging Market Economies, Business Cycles, Potential output
Download: PDF (763 KB)Login
(for staff & registered students)
Upcoming Seminars
Monday 28 July 202512:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
12:00-13:00
Professor Johan Fourie: Stellenbosch University
Topic: "Economic History: TBC"
BER Weekly
25 Jul 2025 Budget hurdle cleared, but US tariff implementation remains a riskIt was another big week on the local political front, but with some constructive momentum. On the trade front, ahead of next week’s 1 August deadline, Trump announced another “massive” trade deal with Japan. The upcoming week is busy, with a slew of global and domestic data releases and several monetary policy decisions, including the SARB....
Read the full issue
Upcoming Seminars
Monday 28 July 202512:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
12:00-13:00
Professor Johan Fourie: Stellenbosch University
Topic: "Economic History: TBC"
BER Weekly
25 Jul 2025 Budget hurdle cleared, but US tariff implementation remains a riskIt was another big week on the local political front, but with some constructive momentum. On the trade front, ahead of next week’s 1 August deadline, Trump announced another “massive” trade deal with Japan. The upcoming week is busy, with a slew of global and domestic data releases and several monetary policy decisions, including the SARB....
Read the full issue