Cyclical Behaviour of Macroeconomic Policies and Capital Flows: A Study of Asian Countries

Nazmus Khan ()

Bangladesh Development Studies, 2011, vol. 34, issue 2, 47-85

Abstract: This paper examines cyclicality in fiscal and monetary policies including capital flows in 28 Asian countries and explains the cyclicality of fiscal policy by considering the effects of corruption and democracy. Pro- cyclical fiscal policy is considered responsible for many economic crises in emerging economies in the past. The paper analyses the nature of macroeconomic policies adopted by these Asian countries and the underlying factors behind such choices. The analysis is important for pursuing effective policy, especia lly in the context of the current economic downturn. Using different measurement techniques, the analysis brings out four key stylised facts. First, fiscal policy and capital flows are mostly pro-cyclical in lower income countries and a-cyclical (or slightly counter-cyclical) in higher income countries. Second, monetary policy is mostly a-cyclical (or slightly pro-cyclical) in lower income countries and counter-cyclical in higher income countries. Third, emerging East Asian countries show mo re pro-cyclical fiscal policy than South Asian and Middle Eastern coun tries. Fourth, there is a positive correlation between corruption and pro-cyclicality of fiscal policy.

Keywords: Cyclical Behaviour; Macroeconomic Policies; Capital Flows; Asian Countries (search for similar items in EconPapers)
JEL-codes: E60 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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