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Post-Crisis Recovery

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  • Pritha Mitra
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    Abstract

    Emerging market financial crises during the late 1990s were marked by sudden withdrawals of funds by foreign creditors, resulting in production declines. The IMF favored positive signals to potential foreign creditors and initially recommended disciplined fiscal policy during the height of crisis, countering standard Keynesian recommendations of expansionary fiscal stimulus. This paper formulates an open-economy general equilibrium model for resolving this policy conundrum and analyzing the impact of disciplined fiscal policy on post-crisis recovery. The model demonstrates via simulations that disciplined fiscal policy will improve (worsen) post-crisis recovery in the presence (absence) of appropriately defined production flexibility.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/219.

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    Length: 43
    Date of creation: 01 Sep 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/219

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    Related research

    Keywords: Emerging markets; sovereign debt; fiscal policy; foreign debt; long-term debt; budget surplus; tax revenue; budget constraint; domestic debt; foreign capital; currency crises; fiscal discipline; fiscal health; tax rates; current account; expansionary fiscal; fiscal tightening; fiscal standing; government expenditures; fiscal policies; excessive borrowing; fiscal stimulus; tax revenues; budget deficit; government spending; fiscal contractions; fiscal expansion; central bank; domestic currency; fiscal policy flexibility; tax base; debt sustainability; fiscal response; debt default; expansionary fiscal policies; domestic currencies; foreign borrowing; fiscal adjustments; short-term debt; fiscal policy recommendations; debt crisis; fiscal performance; sovereign debt crisis;

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    3. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000. "Currency Crises and Monetary Policy in an Economy with Credit Constraints," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2529, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Michael M. Hutchison & Ilan Noy & Lidan Wang, 2007. "Fiscal and Monetary Policies and the Cost of Sudden Stops," Working Papers, University of Hawaii at Manoa, Department of Economics 200724, University of Hawaii at Manoa, Department of Economics.

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