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

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.