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Lessons from the Monetary and Fiscal History of Latin America

Author

Listed:
  • Carlos Esquivel
  • Timothy J. Kehoe
  • Juan Pablo Nicolini

Abstract

Studying the modern economic histories of eleven of the largest countries in Latin America teaches us that a lack of fiscal discipline has been at the root of most of the region's macroeconomic instability. The lack of fiscal discipline, however, takes various forms, not all of them measured in the primary deficit. Especially important have been implicit or explicit guarantees to the banking system; denomination of the debt in US dollars and short maturity of the debt; and transfers to some agents in the private sector, which are large in times of crisis and are not part of the budget approved by the national congresses. Comparing the histories of our eleven countries, we see that rather than leading to an economic contraction, fiscal stabilization generally leads to growth. On the other hand, rising commodity prices are no guarantee of economic growth, nor are falling commodity prices a guarantee of economic contraction.

Suggested Citation

  • Carlos Esquivel & Timothy J. Kehoe & Juan Pablo Nicolini, 2020. "Lessons from the Monetary and Fiscal History of Latin America," Staff Report 608, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:88446
    DOI: 10.21034/sr.608
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    References listed on IDEAS

    as
    1. Ayres, João & Navarro, Gaston & Nicolini, Juan Pablo & Teles, Pedro, 2018. "Sovereign default: The role of expectations," Journal of Economic Theory, Elsevier, vol. 175(C), pages 803-812.
    2. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
    3. Ayres, Joao & Hevia, Constantino & Nicolini, Juan Pablo, 2020. "Real exchange rates and primary commodity prices," Journal of International Economics, Elsevier, vol. 122(C).
    4. Carlos E. Zarazaga, 1993. "Hyperinflations and moral hazard in the appropriation of seigniorage," Working Papers 93-26, Federal Reserve Bank of Philadelphia.
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    More about this item

    Keywords

    Monetary policy; Fiscal policy; Debt crisis; Banking crisis; Off-budget transfers;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary 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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean

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