Editors' Summary (Editorial‪)‬

THE BROOKINGS PAN EL ON Economic Activity held its seventy-fifth conference in Washington, D.C., on March 27 and 28, 2003. This issue of Brookings Papers on Economic Activity includes the papers and discussions presented at the conference. The first paper explores why some emerging market economies are prone to fall into financial crisis at levels of external indebtedness that more advanced economies, and even some other developing economies, seem able to manage. The second paper reviews the current U.S. fiscal situation against the historical record and finds the present is so different that the past is an unreliable guide to how either the economy or future policy will respond. The third paper offers a theoretical analysis of optimal monetary policy in the face of a liquidity trap, with a focus on the importance of expectations. The fourth paper discusses a new methodological approach to economic policymaking under uncertainty, with particular attention to uncertainty about economic models. The concluding report analyzes whether new rules for corporate pension accounting promulgated in the 1980s misled investors into overvaluing the stocks of firms with pension plans during the 1990s market boom. DEVELOPING ECONOMIES HAVE BEEN vulnerable to financial crises for a long time and under a wide range of exchange rate regimes and international financial structures. Although economists have used theoretical models to explore the link between a country's external debt and its vulnerability to crisis, little empirical work has been done to quantify that link or to identify what makes some countries more vulnerable than others. In the first paper of this volume, Carmen Reinhart, Kenneth Rogoff, and Miguel Savastano draw on the experience of a large number of countries at different stages of development to address these issues. Their perspective is informed by a number of observations about individual countries' ability to borrow. Advanced industrial countries typically have access to international capital markets irrespective of their debt burdens. The poorest countries, by contrast, are simply shut out of these markets. The large group of middle-income countries find that their access varies with their economic situation. The authors introduce the concept of "debt intolerance" to describe the fact that some countries are more likely than others to get into financial trouble from taking on a given amount of debt. They also attempt to quantify debt intolerance and the factors that lead to it.