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Economic Policy out of the Corridor. Reflections on the Global Crisis and the Latin American Experience

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  • José María Fanelli

    (CEDES)

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    Abstract

    These notes examine the international crisis by analyzing it through Latin American lenses. The exercise consists in interpreting some key facts of the current global crisis in the light of what we know about volatility, crisis and stabilization policies in Latin America. The exercise has an exploratory purpose and focuses on the aspects of the crisis having analogies with facts that were previously observed in the region. To this effect, a set of stylized facts about volatility, crisis and collapses in Latin America is presented, together with an analysis of the concept of “crisis” understood as the interaction between volatile stochastic processes and governance structures. Finally, the analysis includes the consequences for the macroeconomic stabilization policies in developed countries when the economy is out of the stability corridor, as it seems to be the case right now. An important conclusion is that, out of the corridor, the demands for macroeconomic policy may be qualitatively different, as suggested by the Latin American experience. This is a region where, due to the frequency of crises, some problems are likely to show up, such as: public debt sustainability, uncertainty about the effect of fiscal stimulus, lack of coordination among policies and rules changes.

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    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/53-54-4-Fanelli.pdf
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    Bibliographic Info

    Article provided by Central Bank of Argentina, Economic Research Department in its journal Ensayos Económicos.

    Volume (Year): 1 (2009)
    Issue (Month): 53-54 (January - June)
    Pages: 73-105

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    Handle: RePEc:bcr:ensayo:v:1:y:2009:i:53-54:p:73-105

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    Related research

    Keywords: international crisis; Latin America; macroeconomic policy; macroeconomic volatility; stability corridor;

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    1. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Phoenix Miracles in Emerging Markets: Recovering without Credit from Systemic Financial Crises," NBER Working Papers 12101, National Bureau of Economic Research, Inc.
    2. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications 4508, Inter-American Development Bank, Research Department.
    3. Edwards, Sebastian, 2007. "Crises and Growth: A Latin American Perspective," Revista de Historia Económica, Cambridge University Press, vol. 25(01), pages 19-51, January.
    4. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 45-68, Spring.
    5. Sebastian Edwards, 2007. "Crises and growth : a Latin American perspective," Working Papers in Economic History wp07-07, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
    6. Alan Auerbach, 2002. "Is There a Role for Discretionary Fiscal Policy?," NBER Working Papers 9306, National Bureau of Economic Research, Inc.
    7. Olivier Blanchard, 2005. "European Unemployment: The Evolution of Facts and Ideas," NBER Working Papers 11750, National Bureau of Economic Research, Inc.
    8. Denzau, Arthur T & North, Douglass C, 1994. "Shared Mental Models: Ideologies and Institutions," Kyklos, Wiley Blackwell, vol. 47(1), pages 3-31.
    9. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
    10. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
    11. Robert C. Merton & Zvi Bodie, 2004. "The Design of Financial Systems: Towards a Synthesis of Function and Structure," NBER Working Papers 10620, National Bureau of Economic Research, Inc.
    12. Hnatkovska, Viktoria & Loayza, Norman, 2004. "Volatility and growth," Policy Research Working Paper Series 3184, The World Bank.
    13. Ratna Sahay & Rishi Goyal, 2006. "Volatility and Growth in Latin America: An Episodic Approach," IMF Working Papers 06/287, International Monetary Fund.
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