Marco E. Terrones
Marco E. Terrones is a Professor in the Department of Economics at the Universidad del Pacífico. He was previously Deputy Chief and Assistant to the Director in the Research Department of the International Monetary Fund (IMF). His research interests include: macro-financial linkages, business and financial cycles, and the macroeconomic effects of financial globalization. He is author of the book Collapse and Revival: Understanding Global Recessions and Recoveries (co-authored, October 2015). His extensive record of publication includes many articles in collected volumes as well as top field journals, including the American Economic Review, Journal of Monetary Economics, Journal of International Economics, Journal of Development Economics, International Journal of Forecasting, Journal of International Money and Finance, and Economic Policy. He has also written several articles for policy-oriented publications, including the World Economic Outlook, the IMF's flagship publication, Finance and Development, and VoxEU. His work has been featured in prominent media outlets such as The Economist, Financial Times, Wall Street Journal, and New York Times. Mr. Terrones holds a Ph.D. from the University of Wisconsin-Madison ... view my complete profile.
Most Recent Working Papers
Equalizing growth: The case of Peru. 2020.
with N.R. Ramirez-Rondan and D. Winkelried.
Following the economic and political reforms of the 1990s, the Peruvian economy experienced two decades of exceptional growth in the 2000s. How was inequality affected by the strong growth performance of 2004-19? Which were the main factors associated with these inequality changes? The distribution of both income and consumption in Peru was highly unequal in 2004, with important geographic and regional differences. Since then, the degree of economic disparity decreased significantly associated with the exceptional growth of 2004–19. This decline in inequality was broad-based, yet it was not homogeneous across geographic areas, regions, or time. A correlate of this reduction in inequality has been a falling polarization. While wages and, to a lesser extent, government transfers accounted for most of the decline in income inequality, food prepared at home played a pivotal role in reducing consumption inequality, particularly in rural areas ... read more
Uncertainty and the Uncovered Interest Parity Condition: How Are They Related? 2019.
with N.R. Ramirez-Rondan
There is a well-established literature that documents the failure of the uncovered interest parity (UIP) condition. While a host of factors have been examined as possible reasons behind this result, the role of uncertainty is not fully understood. In this paper, we examine the extent to which economic uncertainty affects the UIP condition in a sample of fourteen economies over the period 2003:1-2018:12. Using threshold panel regression models and exchange rate survey data, we find evidence that the UIP condition holds during low-uncertainty periods but does not during high-uncertainty periods. This finding is robust to the inclusion of other controls, different proxies of uncertainty, changes in the deposit maturity, and estimation method ... read more
Most Recent Publications
Do Fixers Perform Worse than Non-Fixers during Global Recessions and Recoveries?
Journal of International Money and Finance. 2020.
There is an important debate about how economies with different exchange rate regimes performed during the Great Recession and its ensuing recovery. While economic theory suggests that economies with fixed exchange rates are more affected and recover more slowly from global shocks than economies with non-fixed exchange rates, the empirical evidence on the most recent global recession has been mixed. This paper examines the exchange rate and economic growth nexus and assesses how this relationship is affected by the four global recessions and recoveries the world economy has experienced post-Bretton Woods. While there is no robust long-term relationship between exchange rate regimes and growth, there is evidence that fixers recover from global recessions at a weaker pace than non-fixers ... read more
Does Financial Sector Development Affect the Growth Gains from Trade Openness?
with N.R. Ramirez-Rondan and A. Vilchez.
Review of World Economics 2019.
A sizeable literature suggests that financial sector development could be an important enabler of the growth benefits of trade openness. We provide a comprehensive analysis of how financial development can affect the relationship between trade openness and growth using a dynamic panel threshold model and an extensive dataset for a large sample of countries for the 1970-2015 period. We find that there is a financial development threshold in which trade openness has a positive and significant effect on economic growth. We also find that when splitting the sample into industrialized and non-industrialized countries, the financial development threshold that enables the growth benefits of trade is higher in the former group of countries than in the latter. This finding is consistent with the fact that the export composition of industrialized countries is tilted towards more capital-intensive finance-constrained goods ... read more
Do Asset Price Drops Foreshadow Recessions?
with J. Bluedorn and J. Decressin
International Journal of Forecasting, 2016.
This paper examines the usefulness of asset prices in predicting the beginning of recessions in the G-7 countries. It finds that equity/house price drops have a substantial marginal effect on the likelihood of a new recession. Increased market uncertainty, a second-moment variable associated with equity price changes, is also a useful predictor of new recessions in these countries. These findings are robust to the inclusion of the term spread and oil prices. The new recession forecasting performance of our baseline model is superior to that of a similar model estimated over all recession and expansion periods, highlighting a difference between the probabilities of a new recession versus a continuing recession. ... read more
Financial De-Dollarization: A Global Perspective and the Peruvian Experience
with L. Catao
Chapter in Politica and Estabilidad Monetaria en el Peru. 2016. Ed. by G. Yamada and D. Winkelried (p. 121-144).
We re-appraise the cross-country evidence on the dollarization of financial systems in emerging market economies. Amidst striking heterogeneity of patterns across regions, we identify a broad global trend towards financial sector de-dollarization from the early 2000s to the eve of the global financial crisis of 2008-09. Since then, de-dollarization has broadly stalled or even reversed in many economies. Yet a few of them have continued to de-dollarize. This suggests that domestic factors are also important and interact with global factors. To gain insight into such an interaction, we examine the experience of Peru since the early 1990s and find that low global interest rates, low global risk-aversion, and high commodity prices have fostered de-dollarization. Domestic macro-prudential measures that raise the relative cost of domestic dollar loans and the introduction and adherence to inflation targeting have also been key. ... read more
Global House Price Fluctuations: Synchronization and Determinants
with H. Hirata, M. A. Kose and C. Otrok
Chapter in NBER International Seminar on Macroeconomics, 2013., Ed. by F. Giavazzi and K. West (p. 119-166).
We examine the properties of house price fluctuations across 18 advanced economies over the past 40 years. We ask two specific questions: First, how synchronized are housing cycles across these countries? Second, what are the main shocks driving movements in global house prices? To address these questions, we first estimate the global components in house prices and various macroeconomic and financial variables. We then evaluate the roles played by a variety of global shocks, including shocks to interest rates, monetary policy, productivity, credit, and uncertainty, in explaining house price fluctuations using a wide range of FAVAR models. We find that house prices are synchronized across countries, and the degree of synchronization has increased over time. Global interest rate shocks tend to have a significant negative effect on global house prices whereas global monetary policy shocks per se do not appear to have a sizeable impact. Interestingly, uncertainty shocks seem to be important in explaining fluctuations in global house prices. ... read more
How do Business and Financial Cycles Interact?
with S. Claessens and M. A. Kose
Journal of International Economics. 2012.
This paper analyzes the interaction between business and financial cycles using an extensive database covering 44 countries for the period 1960:1-2010:4. Our analysis shows that there are strong linkages between the different phases of business and financial cycles. In particular, recessions associated with financial disruptions, notably house and equity price busts, tend to be longer and deeper than other recessions. Conversely, while recoveries following asset price busts tend to be weaker, recoveries associated with rapid growth in credit and house prices are often stronger. These findings emphasize the importance of financial market developments for the real economy. ... read more
2010 and 2013 Citation of Excellence Award winner. Prizes awarded by the Emerald Group Publishing to the article
What Happens During Recessions,
Crunches and Busts, Economic Policy, October 2009.
Latin America: Exchange Rate Level and Volatility
Peru’s exchange rate stability compared to that of other major economies in Latin America is striking. However, in a low exchange-rate volatility environment, agents do not adequately hedge against significant currency gyrations. This improper hedging reflects, in part, agents’ belief of an implicit exchange rate risk guarantee by the central bank. Only time would tell how bad this problem is in the Peruvian economy.
Global Recessions 2020
with A. Kose and N. Sugawara
The world economy has experienced four global recessions over the past seven decades: in 1975, 1982, 1991, and 2009. During each of these episodes, annual real per capita global GDP contracted, and this contraction was accompanied by weakening of other key indicators of global economic activity. The global recessions were highly synchronized internationally, with severe economic and financial disruptions in many countries around the world. The 2009 global recession, set off by the global financial crisis, was by far the deepest and most synchronized of the four recessions. As the epicenter of the crisis, advanced economies felt the brunt of the recession. The subsequent expansion has been the weakest in the post-war period in advanced economies as many of them have struggled to overcome the legacies of the crisis. In contrast, most emerging market and developing economies weathered the 2009 global recession relatively well and delivered a stronger recovery than after previous global recessions. ... read more
Collapse and Revival. Book
The world is still recovering from the most recent global recession associated with the 2008–09 financial crisis and the possibility of another downturn persists as the global economy struggles to regain lost ground. But, what is a global recession? What is a global recovery? What really happens during these episodes? As the debates about the recent global recession and the subsequent recovery have clearly shown, our understanding of these questions has been very limited. This book tracks the global business cycle through the of a global recession to the renewal of recovery, drawing on four major episodes in the past half century. It defines key terms, documents the main features of a global recession and recovery, and describes the events that take place around these episodes. The book also puts the latest global recession and ongoing recovery in perspective. In addition, it analyzes the interactions between global and national business cycles.
Advanced Praise for Collapse and Revival
Since the deep global recession of 2009, the recovery of the world economy has remained halting and uneven, with new challenges ahead. This new text by Ayhan Kose and Marco Terrones therefore comes at the perfect time. Its compact size is inversely proportional to its ambition—and to its accomplishment. National business cycles have been studied minutely since the days of Mitchell, Burns, Hansen, and Schumpeter; relatively less effort has gone into studying the business cycle as a global phenomenon. Kose and Terrones fill this gap by analyzing business cycles at the world level, covering postwar history, measurement, theory, and the policy implications that follow from a holistic perspective, rather than a narrowly national one. Their pioneering analysis of global recession and recovery will be essential reading for students of the international economy, for practitioners of economics and finance, and especially for policymakers.
Economic Counsellor and Director of Research Department
International Monetary Fund
This is a landmark book that will have a profound influence on how scholars and policy economists think about booms and busts for many years to come. Pioneers in the field of analyzing and defining global recessions, Kose and Terrones argue that it not longer makes any sense to analyze national downturns as if they always occur in isolation. Particularly interesting and original is their emphasis on the asynchronous nature of recoveries. After 2009, for example, advanced economies experienced their slowest post-war recovery, yet for several years emerging markets experienced their fastest. Kose and Terrones' analysis underscores why one needs to think differently about recessions and recoveries in today's globalized world.
Kenneth S. Rogoff
Thomas D. Cabot Professor of Public Policy and Professor of Economics
Collapse and Revival Trailer
with L. Catao.
The move away from domestic dollar use ended in most emerging markets after the global financial crisis, but not in Peru. (Finance and Development, Vol. 53, Number 3)
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