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Fiscal policy in Latin America has been historically imprudent and continues to be viewed with skepticism. At the same time, most countries have remained out of trouble for several years and were able to successfully conduct proactive countercyclical fiscal policy to fight the Great Recession, a historical first. This paper examines the last decade to assess progress, highlight weaknesses, and chart the way forward. The paper looks at structural fiscal balances, filtering out the business cycle and commodity price fluctuations to assess prudent fiscal policy concerning cyclical management and long-run sustainability. Up to the Great Recession countries deserved good grades, in the B range, on both counts. Afterwards, satisfactory cyclical management continued but, critically, extraordinary circumstances led to a regime change in the level of the underlying structural balance. Successful countercyclical fiscal policy was prudently undertaken in the crisis but not decisively unwound in its aftermath, leaving behind an unsatisfactory fiscal stance. With this “Incomplete,” grades slipped to the C range and may end up as an F unless there is normalization to pre-crisis levels to regain sustainability. On a constructive note, the paper distills lessons from experience and charts the path of fiscal reform to reach an A grade.
This paper presents and describes a new dataset of capital control restrictions on both inflows and outflows of 10 categories of assets for 100 countries over the period 1995 to 2013. Building on the data first presented in Schindler (2009) and other datasets based on the analysis of the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), this dataset includes addition ... (View publication)
This paper proposes a new taxonomy of Sudden Stops comprised of seven categories with definitions depending on the behavior of gross and net capital flows. The incidence of different types of Sudden Stops is tracked over time and the type of Sudden Stop related to economic performance. Sudden Stops in Net Flows associated with reductions in Gross Inflows are more disruptive than those where surges ... (View publication)
This paper studies equity price volatility in general equilibrium with news shocks about future productivity and monetary policy. As West (1998) shows, in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility. This paper shows that introducing news shocks in canonical dynamic stochastic general equilibrium model may not reduce asset pr ... (View publication)
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