Topic 2: Understanding Macro-financial Linkages
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Overview
- Low-income countries (LICs) need financial development as well as financial stability.
- Financial depth is key to mitigating shocks like the adverse impacts under the ongoing COVID-19 pandemic.
- Key policy question: How to transition to deeper financial markets while maintaining financial stability.
- The work has made significant progress on financial inclusion, macroprudential policies, and capital flows through a four-phase FCDO-IMF partnership on research on the macroeconomics of LICs.
Phase 1 (March 2012 to March 2015)
- Focus: Nature and implications of shallow financial systems in LICs and challenges for allocating capital, diversifying risk, managing macroeconomic volatility, and promoting growth.
- Methods: Case studies and empirical analysis to examine impediments to financial deepening and implications for macroeconomic policy implementation and financial stability.
- Representative outputs:
- "The Finance and Growth Nexus Re-Examined: Do All Countries Benefit Equally?"
- "Identifying Constraints to Financial Inclusion and Their Impact on GDP and Inequality: A Structural Framework for Policy."
- Reference reporting: reports for year 1, year 2, and year 3 of the FCDO-IMF partnership.
Phase 2 (April 2015 to March 2017)
- Focus areas: Financial deepening and inclusion; design of macroprudential policies; private capital flows; current account liberalization.
- Objectives:
- Understand new developments in private capital flows in LICs and assess potential risks associated with gaining market access by frontier LICs.
- Understand the impact of opening the capital account in LICs.
- Representative outputs:
- "Macroprudential Policy, Incomplete Information and Inequality: The case of Low-Income and Developing Countries."
- "Joining the Club? Procyclicality of Private Capital Inflows in Low Income Developing Countries."
- "Non-FDI Capital Inflows in Low-Income Developing Countries: Catching the Wave?"
- High-level conference: "Managing Capital Flows: Challenges for Developing Countries."
- Reference reporting: reports for year 4, and year 5 of the FCDO-IMF partnership.
Phase 3 (April 2017 to March 2020)
- Research aims: Improve quality of policy advice via thorough investigation of macro-financial linkages in LICs.
- Two main components:
- Development of a new and extensive data set on banking structure, lending and macro-prudential policies in selected developing countries; use of granular bank-, sector-, and loan-level data in empirical analysis.
- Quantitative assessment of financial sector policy frameworks, including macroprudential policy, microprudential bank supervision, and crisis preparedness and management.
- Representative outputs:
- High-level conference: "Financial Inclusion: Drivers and Real Effects."
- Research papers: "Borrowing Costs and The Role of Multilateral Development Banks: Evidence from Cross-Border Syndicated Bank Lending" and "Mobilization Effects of Multilateral Development Banks."
- Reference reporting: reports for year 6, year 7, and year 8 of the FCDO-IMF partnership.
Phase 4 (April 2020 to March 2025)
- Focus areas under current phase:
- Examine main drivers of the persistently high cost of remittances—which are projected to largely decline during the COVID-19 pandemic—while recognizing remittances are now a major source of financing for many LICs.
- Identify where policy interventions may be justified to address barriers to flows.
- Examine the nexus between financial and economic developments.
- Reference reporting: upcoming reports for years 9-13 of the FCDO-IMF partnership.
Outputs and Contact
- Aggregate outputs: List of Outputs: Year 1 to 13 (Excel) and a box on outputs summarizing products produced under each of the four phases.
- Related institutional materials: Advances Made in Five Key Areas Through a FCDO-IMF Collaboration; External Review of the IMF/FCDO Collaboration; Project Managers: Petia Topalova, Emine Boz.
- Contact: MacroResDev@imf.org
Content in this bundle
- wp1759
- June 2019
- June 2020
- June 2021
- June 2022
- June 2023
- June 2024
- June 2025
- Call to Donors to Strengthen IMF Research Capacity for Low-Income Countries
- Macroeconomic Research in Low Income Countries — June 2013
- Macroeconomic Research in Low Income Countries — June 2014
- June2015
- Annual Review of the Macroeconomic Research in Low Income Countries project
- June2017
- MRLIC programme review — By March 2018
- List of Outputs: Year 1 to 13 (XLSX)
- Dec 2018, Vol.6
- Dec 2019, Vol.7
- Dec 2020, Vol.8
- Dec 2021, Vol.9
- Dec 2022, Vol.10
- Dec 2023, Vol.11
- Dec 2024, Vol.12
- Dec 2025, Vol.13
- Jun 2018, Vol.6
- Jun 2019, Vol.7
- Jun 2020, Vol.8
- Jun 2021, Vol.9
- Jun 2022, Vol.10
- Jun 2023, Vol.11
- Jun 2024, Vol.12
- Jun 2025, Vol.13 (PDF)
- Mar 2018, Vol.6
- Mar 2019, Vol.7
- Mar 2020, Vol.8
- Mar 2021, Vol.9
- Mar 2022, Vol.10
- Mar 2023, Vol.11
- Mar 2024, Vol.12 (PDF)
- Mar 2025, Vol.13
- Mar 2026, Vol.14
- Sep 2018, Vol.6
- Sep 2019, Vol.7
- Sep 2020, Vol.8
- Sep 2021, Vol.9
- Sep 2022, Vol.10
- Sep 2023, Vol.11
- Sep 2024, Vol.12
- Sep 2025, Vol.13 (PDF)
- Devarajan–O'Connell final report on the MRLIC project
- Joining the Club? Procyclicality of Private Capital Inflows in Low Income Developing Countries (PDF)
- Wp1522 (PDF)
- Wp1586 (PDF)
References