Do good institutions promote counter-cyclical macroeconomic policies?
AbstractThe literature has argued that developing countries are unable to adopt counter-cyclical monetary and fiscal policies due to financial imperfections and unfavorable politicaleconomy conditions. Using a world sample of 115 industrial and developing countries for 1984-2008, we find that the level of institutional quality plays a key role in countries' ability to implement counter-cyclical macroeconomic policies. The results show that countries with strong (weak) institutions adopt counter- (pro-) cyclical macroeconomic policies, reflected in extended monetary policy and fiscal policy rules. The threshold level of institutional quality at which monetary and fiscal policies are a-cyclical is found to be similar.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 118.
Date of creation: 2012
Date of revision:
Other versions of this item:
- CÃ©sar CalderÃ³n & Roberto Duncan & Klaus Schmidt-Hebbel, 2012. "Do Good Institutions Promote Counter-Cyclical Macroeconomic Policies?," Documentos de Trabajo 419, Instituto de Economia. Pontificia Universidad Católica de Chile..
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-14 (All new papers)
- NEP-CBA-2012-07-14 (Central Banking)
- NEP-MAC-2012-07-14 (Macroeconomics)
- NEP-MON-2012-07-14 (Monetary Economics)
- NEP-POL-2012-07-14 (Positive Political Economics)
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