Fiscal and Monetary Policies and the Cost of Sudden Stops

Michael Hutchison, Ilan Noy and Lidan Wang ()
Additional contact information
Lidan Wang: Risk Management, HSBC Credit Card Services, California

No 200724, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: This article investigates the effects of macroeconomic policy (monetary and fiscal) on output growth during financial crises characterized by a “sudden stop” in net capital inflows in developing and emerging market economies. We investigate 83 sudden stop crises in 77 countries over 1982-2003 using a baseline empirical model to control for the various determinants of output losses during sudden stop crises. Extending the baseline model to account for policies-- contractionary as well as expansionary-- we measure the marginal effects of policy on output losses. Simple descriptive statistics indicate no apparent correlation between the costs of financial crises and the economic policies pursed at the time. Once controlling for various pre-conditions and other factors, however, we find that monetary and fiscal tightening at the time of a sudden stop crisis significantly worsens output losses.

Keywords: Output losses; financial crises; sudden stops; fiscal policy; financial policy (search for similar items in EconPapers)
JEL-codes: E52 E62 F32 F43 O16 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2007-07-17
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.economics.hawaii.edu/research/workingpapers/WP_07-24.pdf First version, 2007 (application/pdf)

Related works:
Journal Article: Fiscal and monetary policies and the cost of sudden stops (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hai:wpaper:200724

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