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Foreign exchange pressures in Latin America: does debt matter?

  • Alex Mandilaras

    (University of Surrey, Guildford, UK)

  • Graham Bird

    (University of Surrey, Guildford, UK)

Latin American countries have been in the eye of economic and financial storms several times in recent years. Advice from the International Monetary Fund has consistently highlighted the need for sound fiscal policies and lower debt levels. But is public debt relevant? Following a brief discussion of the theoretical issues involved, this paper examines empirically the relationship between public indebtedness and pressures in the foreign exchange market. Alternative measures are used to capture the latter and the analysis controls for a de facto classification of exchange rate regimes. Estimations of static and dynamic panels for 28 Latin American and Caribbean (LAC) countries report substantial fiscal effects. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jid.1436
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 20 (2008)
Issue (Month): 5 ()
Pages: 613-627

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Handle: RePEc:wly:jintdv:v:20:y:2008:i:5:p:613-627
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  1. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 97/79, International Monetary Fund.
  2. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
  3. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  4. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  7. Hutchison, Michael M. & Noy, Ilan, 2003. "Macroeconomic effects of IMF-sponsored programs in Latin America: output costs, program recidivism and the vicious cycle of failed stabilizations," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 991-1014, December.
  8. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  9. Bird, Graham & Mandilaras, Alex, 2006. "Regional heterogeneity in the relationship between fiscal imbalances and foreign exchange market pressure," World Development, Elsevier, vol. 34(7), pages 1171-1181, July.
  10. Soojin Moon & Ales Bulir, 2003. "Do IMF-Supported Programs Help Make Fiscal Adjustment More Durable?," IMF Working Papers 03/38, International Monetary Fund.
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