IDEAS home Printed from https://ideas.repec.org/p/chb/bcchwp/217.html
   My bibliography  Save this paper

Macroeconomic Policies and Performance in Latin America

Author

Listed:
  • César Calderón
  • Klaus Schmidt-Hebbel

Abstract

This paper provides new empirical evidence on macroeconomic policies and results in Latin America and the Caribbean (LAC), based on recent data for the region and the world at large. Our results show that: (i) both monetary and fiscal policies are counter- (pro-) cyclical when credibility is high (low), (ii) the accuracy of inflation-targeting central banks in meeting their targets rises with central bank independence and declines with country risk, (iii) intermediate exchange-rate regimes became less persistent than hard pegs and floats after the Asian crisis, (iv) exchange rate regimes do matter for inflation and growth – and regime transitions have significant output and inflation consequences (v) international differences in productivity growth do not track well real exchange rate (RER) trends and RER misalignments are not resolved by supply reforms that raise growth, (vi) LAC’s financial integration with international capital markets has increased significantly during the last decade, (vii) adverse foreign shocks explain a major part of LAC’s growth performance during the 1990s, and (viii) the composition of foreign capital flows does matter for growth.

Suggested Citation

  • César Calderón & Klaus Schmidt-Hebbel, 2003. "Macroeconomic Policies and Performance in Latin America," Working Papers Central Bank of Chile 217, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:217
    as

    Download full text from publisher

    File URL: https://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc217.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. James R. Lothian & Mark P. Taylor, 2008. "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod‐Balassa‐Samuelson Effect?," Economic Journal, Royal Economic Society, vol. 118(532), pages 1742-1763, October.
    2. 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.
    3. Olga Gorbachev & Nicolas Stoffels & Cedric Tille, 2001. "To what extent does productivity drive the dollar?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 7(Aug).
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
    6. Miss Grace Juhn & Mr. Paolo Mauro, 2002. "Long-Run Determinants of Exchange Rate Regimes: A Simple Sensitivity Analysis," IMF Working Papers 2002/104, International Monetary Fund.
    7. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
    8. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    9. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Aug), pages 9-110.
    10. Ilan Goldfajn & Rodrigo O. Valdés, 1999. "The Aftermath of Appreciations," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 229-262.
    11. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476.
    12. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
    13. Alan M. Taylor, 2002. "A Century Of Purchasing-Power Parity," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 139-150, February.
    14. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    15. Mr. Ashoka Mody & Antu Panini Murshid, 2002. "Growing Up with Capital Flows," IMF Working Papers 2002/075, International Monetary Fund.
    16. Masson, Paul R., 2001. "Exchange rate regime transitions," Journal of Development Economics, Elsevier, vol. 64(2), pages 571-586, April.
    17. 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.
    18. Lothian, James R., 2002. "The internationalization of money and finance and the globalization of financial markets," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 699-724, November.
    19. Cavallo, Michele & Ghironi, Fabio, 2002. "Net foreign assets and the exchange rate: Redux revived," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 1057-1097, July.
    20. Klaus Schmidt-Hebbel & Matías Tapia, 2002. "Monetary Policy Implementation and Results in Twenty Inflation-Targeting Countries," Working Papers Central Bank of Chile 166, Central Bank of Chile.
    21. Mr. Atish R. Ghosh & Ms. Anne Marie Gulde & Mr. Jonathan David Ostry & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 1995/121, International Monetary Fund.
    22. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    23. Menzie David Chinn, 1997. "Sectoral Productivity, Government Spending and Real Exchange Rates: Empirical Evidence for OECD Countries," NBER Working Papers 6017, National Bureau of Economic Research, Inc.
    24. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    25. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
    26. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
    27. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    28. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
    29. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    30. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72, National Bureau of Economic Research, Inc.
    31. Dollar, David, 1992. "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985," Economic Development and Cultural Change, University of Chicago Press, vol. 40(3), pages 523-544, April.
    32. Ms. Helene Poirson, 2001. "How Do Countries Choose their Exchange Rate Regime?," IMF Working Papers 2001/046, International Monetary Fund.
    33. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-285, May.
    34. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
    35. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 494-513, May.
    2. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 28(2), pages 37-61, October.
    3. Horacio Aguirre & Tamara Burdisso, 2008. "Dangerous Liaisons? An Empirical Assessment of Inflation Targeting and Exchange Rate Regimes," BCRA Working Paper Series 200839, Central Bank of Argentina, Economic Research Department.
    4. A. Bénassy-Quéré & B. Cœuré, 2002. "The Survival of Intermediate Exchange rate Regimes," THEMA Working Papers 2002-11, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    5. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    6. Coudert, Virginie & Dubert, Marc, 2005. "Does exchange rate regime explain differences in economic results for Asian countries?," Journal of Asian Economics, Elsevier, vol. 16(5), pages 874-895, October.
    7. Fischer, Christoph, 2016. "Determining global currency bloc equilibria: An empirical strategy based on estimates of anchor currency choice," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 214-238.
    8. 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.
    9. Philippe Aghion & Philippe Bacchetta & Romain Rancière & Kenneth Rogoff, 2005. "Productivity growth and the exchange rate regime: The role of financial development," Economics Working Papers 850, Department of Economics and Business, Universitat Pompeu Fabra.
    10. Jinzhao Chen, 2015. "Interprovincial Competitiveness and Economic Growth: Evidence from Chinese Provincial Data (1992–2008)," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 388-414, August.
    11. Meissner, Christopher M. & Oomes, Nienke, 2009. "Why do countries peg the way they peg? The determinants of anchor currency choice," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 522-547, April.
    12. Kenza Benhima, 2012. "Exchange Rate Volatility and Productivity Growth: The Role of Liability Dollarization," Open Economies Review, Springer, vol. 23(3), pages 501-529, July.
    13. Tavlas, George & Dellas, Harris & Stockman, Alan C., 2008. "The classification and performance of alternative exchange-rate systems," European Economic Review, Elsevier, vol. 52(6), pages 941-963, August.
    14. Hossain, Monzur, 2011. "International monetary arrangements for the 21st century--Which way?," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 47-63, June.
    15. Bernard Njindan Iyke, 2017. "The Penn Effect revisited: New evidence from Latin America," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1364-1379, November.
    16. Rodriguez, Cesar M., 2017. "The growth effects of financial openness and exchange rates," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 492-512.
    17. Bohl, Martin T. & Michaelis, Philip & Siklos, Pierre L., 2016. "Austerity and recovery: Exchange rate regime choice, economic growth, and financial crises," Economic Modelling, Elsevier, vol. 53(C), pages 195-207.
    18. Christoph Fischer, 2011. "Currency blocs in the 21st century," Globalization Institute Working Papers 87, Federal Reserve Bank of Dallas.
    19. Morvillier, Florian, 2020. "Do currency undervaluations affect the impact of inflation on growth?," Economic Modelling, Elsevier, vol. 84(C), pages 275-292.
    20. Manuela Francisco & Michael Bleaney, 2003. "Exchange Rate Regimes and Monetary Discipline - Only Hard Pegs Make a Difference," NIPE Working Papers 6/2003, NIPE - Universidade do Minho.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:217. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/bccgvcl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Claudio Sepulveda (email available below). General contact details of provider: https://edirc.repec.org/data/bccgvcl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.