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Macroeconomic Regimes, Policies and Outcomes in the World

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  • Klaus Schmidt-Hebbel

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Abstract

This paper summarizes a research project focused on the empirical determinants of and interrelations between macroeconomic regimes, policies, and performance in the world. The project’s hypotheses are structured into three related themes. The first aim is analyzing the determinants of the likelihood of adoption of macroeconomic policy regimes. The second project theme focuses on cyclicality of macroeconomic policies and accuracy in attaining inflation targets. Finally, the project tests for the behavior of two key macroeconomic variables - economic growth and inflation – focusing on their sensitivity to different macroeconomic regimes and policies. A large world database was assembled for this project from both publicly available and private databases. Data coverage extends to more than 100 countries, with annual time series extending from 1970 to 2008. A wide spectrum of frontier estimation techniques is applied to the country panel data series, appropriate for discrete-choice and continuous variable estimation. The key research results are the following. Country choice of macroeconomic policy regimes (exchange-rate regimes, money-based targeting, inflation targeting, and rule-based fiscal regimes) is explained by countries’ structural and institutional features, macroeconomic performance, financial development, and international integration. The cyclical behavior of fiscal policy reflects the quality of country institutions, financial openness, and financial development. Central bank accuracy in meeting inflation targets is also a result of domestic institutional strength and macroeconomic credibility. Long-term growth is significantly shaped by the quality of policies, financial development, foreign aid, and exchange-rate misalignment, in addition to standard growth determinants. Growth volatility is a result of domestic macroeconomic policy volatility, external shocks, international integration, and financial development. Country inflation rates are determined by international factors and domestic determinants, including fiscal policy, institutional development, monetary and exchange-rate regimes, and financial depth and integration.

Suggested Citation

  • Klaus Schmidt-Hebbel, 2010. "Macroeconomic Regimes, Policies and Outcomes in the World," Estudios de Economia, University of Chile, Department of Economics, vol. 37(2 Year 20), pages 161-187, December.
  • Handle: RePEc:udc:esteco:v:37:y:2010:i:2:p:161-187
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    References listed on IDEAS

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    1. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, September.
    2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
    3. Ernesto Stein & Ernesto Talvi & Alejandro Grisanti, 1999. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," NBER Chapters,in: Fiscal Institutions and Fiscal Performance, pages 103-134 National Bureau of Economic Research, Inc.
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    5. Levy Yeyati, Eduardo & Sturzenegger, Federico & Reggio, Iliana, 2010. "On the endogeneity of exchange rate regimes," European Economic Review, Elsevier, vol. 54(5), pages 659-677, July.
    6. Klaus Schmidt-Hebbel., 2009. "Inflation Targeting Twenty Years on: Where, When, Why, With what Effects, What lies ahead?," Documentos de Trabajo 360, Instituto de Economia. Pontificia Universidad Católica de Chile..
    7. Calderon, Cesar & Schmidt-Hebbel, Klaus, 2003. "Macroeconomic policies and performance in Latin America," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 895-923, December.
    8. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
    9. César Calderón & Klaus Schmidt-Hebbel, 2010. "What Drives Inflation in the World?," RBA Annual Conference Volume,in: Renée Fry & Callum Jones & Christopher Kent (ed.), Inflation in an Era of Relative Price Shocks Reserve Bank of Australia.
    10. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    11. César Calderón & Roberto Duncan & Klaus Schmidt-Hebbel, 2004. "The role of credibility in the cyclical properties of macroeconomic policies in emerging economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(4), pages 613-633, December.
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    14. César Calderón & Norman V. Loayza & Klaus Schmidt-Hebbel, 2008. "Does Openness Imply Greater Vulnerability?," Working Papers Central Bank of Chile 485, Central Bank of Chile.
    15. repec:hrv:faseco:34729976 is not listed on IDEAS
    16. Carare, Alina & Stone, Mark R., 2006. "Inflation targeting regimes," European Economic Review, Elsevier, vol. 50(5), pages 1297-1315, July.
    17. César Calderón & Norman Loayza & Klaus Schmidt-Hebbel, 2006. "External Conditions and Growth Performance," Central Banking, Analysis, and Economic Policies Book Series,in: Ricardo Caballero & César Calderón & Luis Felipe Céspedes & Norman Loayza (Series Editor) & Klaus Sc (ed.), External Vulnerability and Preventive Policies, edition 1, volume 10, chapter 3, pages 041-070 Central Bank of Chile.
    18. Ricardo J. Caballero & Arvind Krishnamurthy, 2004. "Fiscal Policy and Financial Depth," NBER Working Papers 10532, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Agnello, Luca & Schuknecht, Ludger, 2011. "Booms and busts in housing markets: Determinants and implications," Journal of Housing Economics, Elsevier, vol. 20(3), pages 171-190, September.

    More about this item

    Keywords

    Macroeconomic Regimes; Macroeconomic Policies; Inflation; Growth;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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