Complete • September 01, 2014 > February 01, 2017
The global financial crisis of 2007-09 has highlighted weaknesses in macroeconomic and regulatory policies and market failures that contributed to a build up of systemic risks. At the international level, reform proposals have led to the adoption, in November 2010, of the new Basel III banking standards.
However, much of the debate has focused on the implications of financial volatility for short-term economic stability, rather than their long-run effects. Although this emphasis is important—many countries, especially the poorest ones, have very low resilience and capacity to cope with adverse short-term shocks—it is also problematic because one lesson of financial crises is that they often have large adverse, long-term effects on financial development and economic growth. From that perspective, the global financial crisis raises also some important issues. How does financial volatility affect long-run growth? Can macroprudential rules designed to reduce the procyclicality of financial systems be detrimental to long-run growth, due to their effect on risk taking? Very few contributions have attempted to address these issues in a systematic manner.
The purpose of the project was to study, both theoretically and empirically, interactions between financial volatility, prudential regulation, and economic growth, in the context of Sub-Saharan Africa and to draw broad policy lessons for the design of macroprudential rules. Within Sub-Saharan Africa, the project focused particularly on Francophone countries; for the issues at stake, it was expected that the nature of the monetary and financial arrangements in these countries could have important implications. Because both low- and middle-income countries face similar weaknesses in the area of prudential supervision, several aspects of the research have proved to be useful for both types of countries.
The project achieved these four objectives:
Dissemination involved presentations to both academic and policy-oriented audiences, including national and international institutions involved in development. A particular effort was made to promote dissemination in Sub-Saharan Africa, where policymakers were able to benefit directly from the lessons drawn from the project.