Exchange to Change Sept 2017 20170911 E2C zomer web | Page 4

IOB Alumni PhD … Vintage 2017 : Interview with Kelbesa Megersa

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IOB Alumni PhD … Vintage 2017 : Interview with Kelbesa Megersa

E2C : Can you give a short summary of your PhD thesis ?
KM : In the PhD , I present three main essays that discuss the problems of debt sustainability , financial crisis and the role of external monetary shocks to the stability of developing countries .
The first essay is based on the argument that an ‘ unsustainable ’ debt burden plays a negative role on the growth prospects of developing countries . I highlight the role of institutions and the way governments with divergent public sector management capacities may see a diverse nexus between public debt and economic growth . The data I used revealed that developing countries with better public sector management tend to experience the detrimental impacts of public debt at relatively higher levels , when compared to other developing countries with weaker public sector management quality . In the second essay , I used a ‘ signals ’ approach to investigate how the behavior of key macroeconomic variables can be used to predict currency crises in Ethiopia . I focus on three key periods of currency crisis in Ethiopia and define currency crisis episodes as extreme movements in the exchange market pressure index . In the final essay , I study problems linked to external financial shocks . I examine the spillovers ( unintended impacts ) of recent unconventional monetary policies of the US Fed and European Central Bank on developing countries . Specifically , I analyze the impact of these shocks on the returns ( dynamics ) of various South African assets . Since the impact of policy announcements on financial markets is often ‘ immediate ’, I use high frequency daily data . Each essay uses different quantitative research methodologies that are adapted to its research questions .
E2C : The main concerns of your research are sustainability of public debt , financial stability and strategies to cope with external shocks in developing countries . What policy recommendations or advice / lessons can you draw from your research regarding these issues ?
KM : The overall policy implication of the first essay is that the discussion on the negative effects of public debt in developing countries should pay attention to the issue of cross-country heterogeneity , particularly in terms of quality of institutions . Further , the chapter also draws attention to rising public debt levels in developing countries , in a period where the major focus has shifted to advanced countries which have historically much higher levels of debt to GDP . Even with the best intentions ( government loans to finance infrastructures that would serve as engines of growth ), rapidly rising public debt levels in developing countries should be a matter of concern . Borrowing too much ( beyond repayment capacities ) makes these countries susceptible to debt crises . The exercise in the second essay shows that financial ‘ early warning systems ’ can be useful instruments . They can notify policymakers when ‘ known anomalies ’ are seen in the economy that might potentially progress into a full-blown crisis . Further , having a tool based on multiple key macroeconomic variables and sectors often does a better ‘ early warning ’ job . However , given the fact that future crises may have different roots from previous ones and considering the mixed performance of such complex techniques ( e . g . failures to anticipate some past crises ), developing countries should not solely rely on these tools . Preferably , authorities should combine their own observations with forecasts of ‘ early warning systems ’. My third essay shows clear evidence of spillovers from the so-called
Exchange to change September 2017