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Policies to reduce instability

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  • Luis F. Brunstein

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    Abstract

    The current stabilization policy adopted by many Latin Americancountries demands a restrictive monetary policy coupled with aconservative fiscal policy. While these policies have been adapted to suturefinancial fragilities, they have not been able to significantly improve thelevels of structural poverty and unemployment, rendering the approachvulnerable to political risk. By exploring the case of Argentina, this paperargues that the presence of such risk forces the government to adopt aheterodox, eclectic and very flexible approach to policy formation thatmay maximize its chances to achieve long term social objectives. La actual política de estabilización adoptada por muchos paíseslatinoamericanos exige una política monetaria restrictiva aunada a unapolítica fiscal conservadora. Aunque estas políticas han sido adaptadaspara aliviar fragilidades financieras, no han sido capaces de mejorarsignificativamente los niveles de pobreza y desempleo estructurales, locual hace que el enfoque sea vulnerable a riesgos políticos. Mediante elestudio del caso de Argentina, este trabajo argumenta que la presenciade estos riesgos obliga al gobierno a adoptar un heterodoxo, ecléctico ymuy flexible sistema de formulación de políticas que puede maximizarsus posibilidades de lograr objetivos sociales de largo plazo.

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    File URL: http://rcientificas.uninorte.edu.co/index.php/economia/article/viewFile/544/896
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    Bibliographic Info

    Article provided by UNIVERSIDAD DEL NORTE in its journal REVISTA DE ECONOMÍA DEL CARIBE.

    Volume (Year): (2008)
    Issue (Month): ()
    Pages:

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    Handle: RePEc:col:000382:007100

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    Related research

    Keywords: Financial instability; contagion; monetary and fiscalpolicy; political risk; heterodox policy formation.Inestabilidad financiera; contagio; política monetariay fiscal; riesgo político; formulación heterodoxa de políticas.;

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    1. Quan Le & Paul J. Zak, 2001. "Political Risk and Capital Flight," Claremont Colleges Working Papers 2001-10, Claremont Colleges.
    2. Woo, Jaejoon, 2003. "Social polarization, industrialization, and fiscal instability: theory and evidence," Journal of Development Economics, Elsevier, vol. 72(1), pages 223-252, October.
    3. John Williamson, 1999. "Crawling Bands or Monitoring Bands: How to Manage Exchange Rates in a World of Capital Mobility," Policy Briefs PB99-03, Peterson Institute for International Economics.
    4. FFF1Jitka NNN1Rychtarikova, 2004. "The case of the Czech Republic," Demographic Research Special Collections, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 2(5), pages 105-138, April.
    5. Choudhri, Ehsan U. & Faruqee, Hamid & Hakura, Dalia S., 2005. "Explaining the exchange rate pass-through in different prices," Journal of International Economics, Elsevier, vol. 65(2), pages 349-374, March.
    6. Holzmann, Robert & Jorgensen, Steen, 1999. "Social protection as social risk management : conceptual underpinnings for the social protection sector strategy paper," Social Protection Discussion Papers 20119, The World Bank.
    7. Joshua Aizenman & Jaewoo Lee, 2005. "International Reserves," IMF Working Papers 05/198, International Monetary Fund.
    8. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
    9. Michael Chui & Simon Hall & Ashley Taylor, 2004. "Crisis spillovers in emerging market economies: interlinkages, vulnerabilities and investor behaviour," Bank of England working papers 212, Bank of England.
    10. Jakob Christensen, 2004. "Capital Inflows, Sterilization, and Commercial Bank Speculation," IMF Working Papers 04/218, International Monetary Fund.
    11. Garry J. Schinasi, 2004. "Defining Financial Stability," IMF Working Papers 04/187, International Monetary Fund.
    12. Ilene GRABEL, 2004. "Trip Wires And Speed Bumps: Managing Financial Risks And Reducing The Potential For Financial Crises In Developing Economies," G-24 Discussion Papers 33, United Nations Conference on Trade and Development.
    13. David Hauner, 2006. "A Fiscal Price Tag for International Reserves," International Finance, Wiley Blackwell, vol. 9(2), pages 169-195, 08.
    14. Le, Quan Vu & Zak, Paul J., 2006. "Political risk and capital flight," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 308-329, March.
    15. Bilson, Christopher M. & Brailsford, Timothy J. & Hooper, Vincent C., 2002. "The explanatory power of political risk in emerging markets," International Review of Financial Analysis, Elsevier, vol. 11(1), pages 1-27.
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