Do good institutions promote counter-cyclical macroeconomic policies?

Cesar Calderon (), Roberto Duncan and Klaus Schmidt-Hebbel

No 118, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: The literature has argued that developing countries are unable to adopt counter-cyclical monetary and fiscal policies due to financial imperfections and unfavorable politicaleconomy conditions. Using a world sample of 115 industrial and developing countries for 1984-2008, we find that the level of institutional quality plays a key role in countries' ability to implement counter-cyclical macroeconomic policies. The results show that countries with strong (weak) institutions adopt counter- (pro-) cyclical macroeconomic policies, reflected in extended monetary policy and fiscal policy rules. The threshold level of institutional quality at which monetary and fiscal policies are a-cyclical is found to be similar.

Keywords: Interest rates; Monetary policy; Fiscal policy (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pol
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Do Good Institutions Promote Countercyclical Macroeconomic Policies? (2016)
Working Paper: Do Good Institutions Promote Counter-cyclical Macroeconomic Policies? (2014)
Working Paper: Do Good Institutions Promote Counter-Cyclical Macroeconomic Policies? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:118

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