Monetary and Fiscal Policies in a Sudden Stop: Is Tighter Brighter?

Alberto Ortiz (), Pablo Ottonello, Federico Sturzenegger and Ernesto Talvi
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Ernesto Talvi: Ceres

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: In this paper we ask whether tighter monetary and fiscal policies are the right way to face a sudden stop (a sudden curtailment in capital flows) in a typical emerging economy. We develop exogenous measures of fiscal and monetary policy response and conclude that tighter policies are associated to larger falls in output. The conclusion of the analysis is not so much that macro policies should be relaxed upon a crisis, but that countries should prepare themselves by creating the conditions to be able to act countercyclically upon such events. This entails among other things reducing balance sheet mismatches or strenghtening fiscal results during expansions.

Date: 2007-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp07-057

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