Foreign aid flows to poor, aid-dependent economies are highly volatile and pro-cyclical. Shortfalls in aid coincide with shortfalls in GDP and government revenues. This increases the consumption volatility in aid dependent countries, thereby causing substantial welfare losses. This paper finds...

Emerging markets are subject to exogenous shocks that are more frequent and bigger in size compared to the developed countries. Structural weaknesses such as currency mismatches in their balance sheets make these shocks even costlier. Yet, often times these countries are found having...