The Road to Redemption: Policy Response to Crises in Latin America

Carlos Vegh and Guillermo Vuletin

No 20675, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the fiscal and monetary policy responses to crises in Latin America over the last 40 years. We argue that, on average, Latin American countries have "graduated" in terms of their policy responses in the sense that they have been able to switch from procyclical to counteryclical policy responses. This average response, however, masks a great deal of heterogeneity with some countries (such as Chile, Brazil, and Mexico) leading the graduation process and others (like Argentina and Venezuela) still showing procyclical policy responses. We further show that countercyclical policy responses have been effective in reducing the duration and intensity of crises. Finally, we relate our analysis to the current crisis in the Eurozone and argue that, like in many instances in Latin America, procyclical fiscal policy has increased the duration and intensity of the crisis.

JEL-codes: E52 E62 F41 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-lam and nep-mac
Note: IFM
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Citations: View citations in EconPapers (35)

Published as Carlos A Vegh & Guillermo Vuletin, 2014. "The Road to Redemption: Policy Response to Crises in Latin America," IMF Economic Review, Palgrave Macmillan, vol. 62(4), pages 526-568, November.

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