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Informal = Illegal? Think Again

Truman Packard's picture

Cover Photo: © Getty Images, Inc.
Book Title: In From the Shadow : Integrating Europe’s Informal Labor
by Truman Packard, Johannes Koettl, Claudio Montenegro

Few phenomena that occupy the time of governments and economists are as ambiguously defined and difficult to measure as the “shadow" or "informal" economy. Those terms immediately make some people think of the guys who built an extension for their house and insisted on being paid in cash. Others remember the taxi driver who took them home after a late night out, and either didn’t have a meter or didn’t turn it on. Those who have been in very poor countries might recall bustling markets where you can haggle for anything from a handful of fresh chilies to a pair of sandals or even livestock. All of these are likely to be part of the unregulated and untaxed transactions that make up a country's informal economy.
 

Quote of the Week: James Surowiecki

Sina Odugbemi's picture

“But, if recent history has taught us anything, it’s that self-regulation doesn’t work in finance, and that worries about reputation are a weak deterrent to corporate malfeasance.”

-James Surowiecki, Staff Writer, The New Yorker

-As quoted in The New Yorker, July 30, 2012. Bankers Gone Wild

 

 

Video of launch event of the book Migration and Remittances during the Global Financial Crisis and Beyond

Dilip Ratha's picture

We had an interesting launch event for this volume on July 10th at the World Bank's Infoshop in Washington DC. There have been a number of media reports (see for example the story on Wall Street Journal by Eric Bellman, a Q&A in Mint by Malia Politzer, and another Q&A by Donna Barne). See also related posts on this blog from my co-editors Ibrahim and Jeff on their interventions during the book launch. 

AIDS Debate Poses Tough Funding Questions to Top Thinkers

Donna Barne's picture

AIDS Debate

The question was on the pros and cons of HIV/AIDS funding and the tools were sharp insights and passionate views as some of the most influential figures in the fight against AIDS and poverty participated in a lively debate before a packed World Bank auditorium July 23.

The webcast event, co-hosted by the Bank, U.S. Agency for International Development/ U.S. President's Emergency Plan for AIDS Relief, and the medical journal The Lancet, asked a panel of experts to weigh global funding for HIV/AIDS in a fiscally strained, post financial crisis environment. The debate was part of the first International AIDS Conference to be held in Washington in 22 years.

The Euro crisis – What role did the common currency play?

Volker Treichel's picture

As emergency meetings of Heads of State to address the Euro zone crisis have seemingly become recurrent events, the crisis in the Euro zone lingers on stubbornly and might possibly become more serious with borrowing costs for Italy and Spain, reaching unsustainably high levels. As ever bolder proposals proliferate to put an end to the crisis, it is important to look back at the history of the crisis and try to identify its root causes.  A working paper by Justin Lin and myself addresses this question and, in particular, the extent to which it was driven by the global financial crisis and by factors internal to Europe, notably the adoption of the common currency. 

Euro in the Twilight Zone: Past Lessons, Implications and Policy Options (part 2)

Inci Otker-Robe's picture

In a previous installment, we explored one particular past financial crisis which resembles the current tensions in the Euro Zone in key aspects—specifically, the 2001 collapse of Argentina’s currency board. Taking history as our guide, we discuss the lessons that can be learned from past crises and potential steps policymakers can take.

Implications for the euro zone

Until even as short as a month ago, the possibility of a breakdown of the European monetary union triggered by an exit of one or more of its members had been considered no more than a tail risk scenario. The odds of such an outcome are now seen to have grown, as market concerns continue to focus on economic and financial fundamentals of the peripheral Euro Area members that, similar to Argentina, failed to satisfy the preconditions of a sustainable membership in the currency union. Given the significant economic and financial interlinkages within the Euro Area, and the key role of Europe in the global economy (Figure 1), potential fallout from such a breakdown would be much more profound for the region as a whole and the rest of the world, compared to any crisis experienced in the past.

Figure 1. Exposure to Peripheral European Countries

 

Euro in the Twilight Zone: Past Lessons, Implications and Policy Options

Inci Otker-Robe's picture

The very foundations of the European monetary union have been severely shaken by the ongoing financial crisis and doubts surrounding its future have intensified. In this two part series, we explore the following issues: What are the key vulnerabilities underlying a shared currency union? What can we learn from past experiences and what would the impact be if the crisis escalates? And what policy measures should be taken?Photo Credit: dasroofless, Flickr Creative Commons

Fragility of “hard” exchange rate pegs

A monetary union can bring large benefits in terms of trade, low inflation, and lower borrowing costs, but it comes with tight strings attached. As an extreme form of a hard exchange rate peg, it is vulnerable to “sudden stops” (De Grauwe, 2009 ). History is full of illustrations of the demands placed on an economy by hard exchange rate pegs, such as dollarization and currency boards. To be sustainable, a hard peg must be accompanied by fiscal discipline and labor and product market flexibility, since monetary and exchange rate policies can no longer be used to respond to shocks and safeguard competitiveness. The lack of these preconditions not only undermines the sustainability of the regime, but also impedes the recovery from an ensuing crisis in the wake of its collapse.


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