Macro Research for Development: An IMF-FCDO Collaboration—Topic 2: Understanding Macro-financial Linkages

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. How to transition to deeper financial markets while maintaining financial stability is a key policy question on which LIC policymakers seek advice-see for instance deliberations at the March 2016 regional workshop at the Bank of Tanzania. The work under this topic has made significant progress in tackling the issues of financial inclusion, macroprudential policies, and capital flows. What follows is a brief description of how the topic on understanding macro-financial linkages has evolved over the four phases of the FCDO-IMF partnership on research on the macroeconomics of LICs.