Harvard University
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Emmanuel Farhi
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IGC PROJECT
External Volatility and Macro Insurance
External volatility from sharp movements in terms of trade and reversals in gross financial flows is a pressing concern for developing and emerging countries, and has been a key driver of aggregate fluctuations in the recent financial crisis. Unfettered, it disturbs exchange rates, interest rates and domestic economic activity, generates boom-bust cycles in commodities and induces inflationary and deflationary pressures which in turn make monetary and macroeconomic management extremely difficult. What should developing countries do to protect themselves?
