Topic 4: Crisis, Democracy and Conflict; Emerging and Developing Economies in an Interconnected World

Ieva Skarda

Globalisation and Democracy: the Effect of Trade

Relatively little is known about the effect of external economic influence on political factors in host countries. Recently the field of political economy has experienced a surge in theoretical models linking economic variables such as income shocks and inequality to political change, including transitions to and away from democracy. Parallel literature has explored the mechanisms that spur conflict and political instability. Many of the economic variables suggested by these theories can be affected by globalisation and therefore understanding the political consequences of globalisation are especially relevant for the developing and transition economies that while being exposed to increased trade and financial flows with the rest of the world, are struggling with internal political issues. My work utilises panel data techniques to examine the causal effect of external influence, particularly trade and FDI on 1) democracy and 2) state fragility and conflict in host countries.

Aida García-Lázaro

A DSGE Model with Macro-prudential Policies for Emerging Economics

The severe effects of the previous international financial crisis has raised the emphasis in financial stability and some policies that contribute to mitigate the risk across the financial system in the future, once the monetary policy and its control on inflation has not been enough to guarantee that objective as it was assumed for many central banks. Recently, there has been an agreement in academia and among policymakers about the need of designing a set of macro-prudential policies to prevent the effects of future crises. This paper enters in this perspective and aims to develop a Dynamic Stochastic General Equilibrium (DSGE) macroeconomic model, which can incorporate a couple of macro-prudential policies suitable for emerging economies. This model follows the spirit and framework of Bernanke, Gertler and Gilchrist (1999) and Gertler and Karadi(2011) in the sense of the financial accelerator, financial intermediaries and financial constraints. Finally, some empirical evidence will be provided using data of an emerging economy.

JEL Classification: C60, C61, E44, E61

Key words: macro-prudential policies, financial stability, DSGE models, emerging markets and risk.

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