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Capital Flows and Destabilizing Policy in Latin America

Author

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  • Jose Ricardo da Costa e Silva

    (Central Bank of Brazil)

  • Ryan A. Compton

    (University of Manitoba)

Abstract

Motivated by the excessive macroeconomic volatility experienced in Latin America, we examine the possible contribution of monetary and fiscal policies to this outcome. In contrast with previous literature, we consider the possible simultaneity between policy and GDP growth by using GMM VAR econometric techniques. Additionally, we explore the direct impact international capital inflows have on these policies. Our evidence suggests that for the group of countries we consider, most practice destabilizing fiscal and monetary policy, and capital inflow consistently influences policy in a pro-cyclical direction.

Suggested Citation

  • Jose Ricardo da Costa e Silva & Ryan A. Compton, 2008. "Capital Flows and Destabilizing Policy in Latin America," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 9(3), pages 491-517.
    • Handle: RePEc:anp:econom:v:9:y:2008:i:3:491-517
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Fiscal and Monetary Policies; Capital Flows; Latin America;
    All these keywords.

    JEL classification:

    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F39 - International Economics - - International Finance - - - Other

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