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Capital Flows and Destabilizing Policy in Latin America

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  • Jose Ricardo da Costa e Silva

    (Central Bank of Brazil)

  • Ryan A. Compton

    (University of Manitoba)

Abstract

Motivated by the excessive macroeconomic volatility experienced in Latin America, we examine the possible contribution of monetary and fiscal policies to this outcome. In contrast with previous literature, we consider the possible simultaneity between policy and GDP growth by using GMM VAR econometric techniques. Additionally, we explore the direct impact international capital inflows have on these policies. Our evidence suggests that for the group of countries we consider, most practice destabilizing fiscal and monetary policy, and capital inflow consistently influences policy in a pro-cyclical direction.

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Bibliographic Info

Article provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its journal Economia.

Volume (Year): 9 (2008)
Issue (Month): 3 ()
Pages: 491-517

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Handle: RePEc:anp:econom:v:9:y:2008:i:3:491-517

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Keywords: Fiscal and Monetary Policies; Capital Flows; Latin America;

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  1. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
  2. César Calderón & Klaus Schmidt-Hebbel, 2003. "Macroeconomic Policies and Performance in Latin America," Working Papers Central Bank of Chile 217, Central Bank of Chile.
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  14. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
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  18. repec:fth:harver:1435 is not listed on IDEAS
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Cited by:
  1. Nan Li, 2007. "Cyclical Wage Movements in Emerging Markets Compared to Developed Economies: A Contractual Approach," Discussion Papers 06-026, Stanford Institute for Economic Policy Research.
  2. Nan Li, 2011. "Cyclical Wage Movements in Emerging Markets Compared to Developed Economies: the Role of Interest Rates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 686-704, October.

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