Fiscal Policy Effects and Capital Mobility in Some Latin American Countries (original) (raw)
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Fiscal Policy Effects and Capital Mobility in Latin American Countries
Journal of Economic Integration
This paper studies the relationship between the size of the fiscal multiplier and the degree of capital mobility in some Latin American countries. Mundell's (1963) and Fleming's (1962) models show that this effect could be very large or small (close to zero) depending on the exchange rate and the degree of capital mobility, and the potency of a fiscal policy is inversely correlated with the degree of capital mobility. Based on Mora's (2013) model, we argue that the multiplier might not be negatively correlated with capital mobility in these countries. In other words, the potency of fiscal policy could be small because the degree of capital mobility in Latin American countries is quite low. The empirical findings support our hypothesis. We have found that the size of the fiscal multiplier tends to increase or (at least) to remain around 1.40 in these countries in the short run; however, in the long run, this effect tends to decrease significantly to 0.34. These results also suggest that the effectiveness of fiscal policies in Latin American countries are still large but could be larger if they become more financially integrated with the rest of the world.
JEI Fiscal Policy Effects and Capital Mobility in Latin American Countries.pdf
Journal of Economic Integration, 2019
This paper studies the relationship between the size of the fiscal multiplier and the degree of capital mobility in some Latin American countries. Mundell’s (1963) and Fleming’s (1962) models show that this effect could be very large or small (close to zero) depending on the exchange rate and the degree of capital mobility, and the potency of a fiscal policy is inversely correlated with the degree of capital mobility. Based on Mora’s (2013) model, we argue that the multiplier might not be negatively correlated with capital mobility in these countries. In other words, the potency of fiscal policy could be small because the degree of capital mobility in Latin American countries is quite low. The empirical findings support our hypothesis. We have found that the size of the fiscal multiplier tends to increase or (at least) to remain around 1.40 in these countries in the short run; however, in the long run, this effect tends to decrease significantly to 0.34. These results also suggest that the effectiveness of fiscal policies in Latin American countries are still large but could be larger if they become more financially integrated with the rest of the world.
FDI asymmetries in emerging economies: The case of Colombia
International Journal of Economics and Finance, 2019
This paper studies the relationship between the size of the fiscal multiplier and the degree of capital mobility in some Latin American countries. Mundell's (1963) and Fleming's (1962) models show that this effect could be very large or small (close to zero) depending on the exchange rate and the degree of capital mobility, and the potency of a fiscal policy is inversely correlated with the degree of capital mobility. Based on Mora's (2013) model, we argue that the multiplier might not be negatively correlated with capital mobility in these countries. In other words, the potency of fiscal policy could be small because the degree of capital mobility in Latin American countries is quite low. The empirical findings support our hypothesis. We have found that the size of the fiscal multiplier tends to increase or (at least) to remain around 1.40 in these countries in the short run; however, in the long run, this effect tends to decrease significantly to 0.34. These results also suggest that the effectiveness of fiscal policies in Latin American countries are still large but could be larger if they become more financially integrated with the rest of the world. JEL Classifications: E62, E12, F41, O54
RePEc: Research Papers in Economics, 2015
This paper studies the determinants of size differentials between fiscal multipliers in countries around the world, both advanced and developing economies. Besides domestic conditions and exchange rate regimes, we also introduce variables not before considered for explaining multiplier size differentials such as capital flows and the openness of capital markets. We also disaggregate GDP into its main components in order to identify the channels through which external and internal factors can influence GDP after a change in fiscal policy. Our results point to the existence of a new channel through which fiscal policy effectiveness is affected. Capital flows, especially FDI flows, play an important role in determining the sizes of fiscal multipliers, and a country's external conditions largely explain GDP changes after fiscal expenditure shocks. Our results also point toward a strong link between a country's international position and its real economy.
Capital Flows and Destabilizing Policy in Latin America
Economia, 2008
Motivated by the excessive macroeconomic volatility experienced in Latin America, we examine the possible contribution of monetary and fiscal policies to this outcome. In contrast with previous literature, we consider the possible simultaneity between policy and GDP growth by using GMM VAR econometric techniques. Additionally, we explore the direct impact international capital inflows have on these policies. Our evidence suggests that for the group of countries we consider, most practice destabilizing fiscal and monetary policy, ...
Fiscal Policy in Latin America:Lessons and Legacies of the Global Financial Crisis
2015
Authorized for distribution by Nigel Chalk and Gilbert Terrier DISCLAIMER: Staff Discussion Notes (SDNs) showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. The views expressed in Staff Discussion Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
IS TIGHTER FISCAL POLICY EXPANSIONARY UNDER FISCAL DOMINANCE?: HYPERCROWDING OUT IN LATIN AMERICA
We test for hypercrowding out as a signal of market concerns over fiscal dominance in five Latin American countries. Hypercrowding out occurs when fiscally dominated governments' domestic credit demands are perceived as so intrusive to a nation's financial system that a move towards fiscal surplus lowers interest rates and increases growth. We sample five Latin American countries to test for these relationships. Judged by the results of vector error correction models, three nations test clearly positive, suggesting market concern despite their recent efforts towards fiscal balance. (JEL E430, E620, O230, O540)
Fiscal Rules and Economic Size in Latin America and the Caribbean
World Bank Publications, 2020
Following the collapse of commodity prices in Latin America and the Caribbean (LAC) in 2014-15, many countries in the region were unable to cushion the impact of the shock in order to experience a more gradual adjustment, to a large extent because they had not built adequate fiscal buffers during the commodities’ windfall from 2010-14. Many LAC countries entered 2020 and the COVID-19 crisis in an even more difficult position, with rising debt and limited fiscal space to smooth the negative impacts of the pandemic and adequately support their economies. Fiscal policy in most LAC countries has been procyclical. Public expenditure and debt levels have expanded in good times and contracted in severe downswings due to insufficient fiscal buffers, making crises deeper. Fiscal rules represent a promising policy option for these and other economies. If well-designed and implemented, they can help build buffers during periods of strong economic performance that will be available during rainy...