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Using the dating algorithm by Harding and Pagan (2002) on a quarterly database for 23 emerging market economies (EMEs) and 12 developed countries over the period 1980.Q1 - 2006.Q2, the authors proceed to characterize and compare the business cycle features of these two groups. They first find that recessions are deeper and more frequent among EMEs (especially, among LAC countries) and that expansions are more sizable and longer (especially, among East Asian countries). After this characterization, this paper explores the linkages between the cost of recessions (as measured by the average annual rate of output loss in the peak-to-trough phase of the cycle) and several country-specific factors. The main findings are: (a) adverse terms of trade shocks raises the cost of recessions in countries with a more open trade regime, deeper financial markets and, surprisingly, a more diversified output structure. (b) U.S. interest rate shocks seem to have a significant impact on the cost of recessions in East Asian countries. (c) Recessions tend to be deeper if they coincide with a sudden stop, but the effect tends to be mitigated in countries with deeper domestic credit markets. (d) Countries with stronger institutions tend to have less costly recessions.

Banks & Banking Reform --- Business cycle --- Business cycles --- Central bank --- Commodity prices --- Credit markets --- Currencies and Exchange Rates --- Debt Markets --- Domestic credit --- Economic policies --- Economic Theory & Research --- Emerging economies --- Emerging market --- Emerging market economies --- Emerging Markets --- Exchange rate --- Finance and Financial Sector Development --- Financial markets --- Financial shocks --- Interest rate --- International bank --- Macroeconomic volatility --- Macroeconomics and Economic Growth --- Output loss --- Private Sector Development --- Tax --- Trade regime

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Despite the scale of the global financial crisis, to date it has not resulted in a sovereign debt crisis among emerging market countries. Two significant factors in this outcome are the improved macroeconomic management and public debt management in these countries over the past decade. This paper reviews the improvements in macroeconomic fundamentals and the composition of public debt portfolios in emerging market countries prior to the crisis and concludes that the policies and strategies pursued by governments provided them with a buffer when the crisis hit. Nevertheless, with the international capital markets effectively closed for over three months and domestic borrowing in many cases impacted by extreme risk aversion, government debt managers were required to adapt their strategies to rapidly changing circumstances. The paper reviews the impact of the crisis and the responses of debt managers to the drying up of international capital, decreased liquidity in markets, and sharply increased term premia. Three categories of response are identified: (i) funding from other sources to reduce pressure on market borrowing; (ii) adapting funding programs to changes in demand in the different types of securities; and (iii) implementing liability management operations to support the market. Most governments were willing to accept temporarily greater risk in their portfolios, often reversing long established strategies, at a time when financial markets were under stress. These actions contributed to the measures taken by governments to stabilize markets and prevent economies from stalling. Looking to the future, government debt managers will need to consider how they can increase the resilience of public debt portfolios for the uncertain times that lie ahead.

Banks & Banking Reform --- Capital markets development --- Currencies and Exchange Rates --- Debt crisis --- Debt Markets --- Domestic borrowing --- Emerging market --- Emerging market countries --- Emerging market economies --- Emerging Markets --- External Debt --- Finance and Financial Sector Development --- Financial crisis --- Global capital --- Global capital markets --- Government debt --- International capital --- International capital markets --- International Economics and Trade --- Liquidity --- Macroeconomic management --- Market borrowing --- Portfolios --- Private Sector Development --- Public debt --- Public debt management --- Risk aversion --- Sovereign debt