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

47 Pages Posted: 17 Nov 2014

See all articles by Carlos A. Vegh

Carlos A. Vegh

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); University of Maryland - Department of Economics; University of California at Los Angeles; National Bureau of Economic Research (NBER)

Guillermo Vuletin

Brookings Institution

Date Written: November 2014

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.

Suggested Citation

Vegh, Carlos A. and Vuletin, Guillermo, The Road to Redemption: Policy Response to Crises in Latin America (November 2014). NBER Working Paper No. w20675, Available at SSRN: https://ssrn.com/abstract=2526030

Carlos A. Vegh (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

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University of Maryland - Department of Economics ( email )

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University of California at Los Angeles ( email )

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HOME PAGE: http://vegh.sscnet.ucla.edu

National Bureau of Economic Research (NBER)

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Guillermo Vuletin

Brookings Institution ( email )

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