The Great Recession, 'Rainy Day' Funds, and Countercyclical Fiscal Policy in Latin America
AbstractThis paper examines the fiscal policy options that were available to Latin American countries at the onset of the current global economic crisis. It concludes that most of the major countries in the region possessed the fiscal space (as measured by credible fiscal sustainability and debt headroom) to run prudent countercyclical fiscal deficits. For those countries, the appropriate policy response involved a constrained fiscal expansion focused on productive public spending and financed by drawing on the “rainy day” funds - in the form of large stocks of foreign exchange reserves - that they accumulated in prior years, rather than by market borrowing. It shows that the recent surge in multilateral financial activity to alleviate market illiquidity, whether intended for reserve or budget support, strengthens the case for this policy prescription : with multilateral support, the appropriate policy response is more expansionary, and its financing is less reliant on market borrowing.
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Bibliographic InfoPaper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2010-17.
Length: 36 pages
Date of creation: Jul 2010
Date of revision:
Publication status: Published in Contemporary Economic Policy, Vol. 29, No. 3 (July 2011)
Other versions of this item:
- Eduardo Fernández‐Arias & Peter Montiel, 2011. "The Great Recession, “Rainy Day” Funds, And Countercyclical Fiscal Policy In Latin America," Contemporary Economic Policy, Western Economic Association International, vol. 29(3), pages 304-322, 07.
- Eduardo Fernández-Arias & Peter Montiel, 2010. "The Great Recession, 'Rainy Day' Funds, and Countercyclical Fiscal Policy in Latin America," Center for Development Economics 2010-04, Department of Economics, Williams College.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eduardo Fernandez-Arias & Peter Montiel, 2009. "Crisis Response in Latin America: Is the "Rainy Day" at Hand?," Research Department Publications 4628, Inter-American Development Bank, Research Department.
- Eduardo Fernández Arias & Eduardo Levy-Yeyati, 2010. "Global Financial Safety Nets: Where Do We Go from Here?," Business School Working Papers 2010-06, Universidad Torcuato Di Tella.
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