The exchange rate and fiscal consolidation episodes in emerging market economies

Mati, Amine; Thornton, John

doi:10.1016/j.econlet.2007.12.003

Cited by 8 publications

(7 citation statements)

References 13 publications

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“…McDermott and Wescott (1996) and Barrios et al (2010) do not find any conclusive evidence regarding the effect of the exchange rate devaluation in facilitating successful fiscal consolidations. In the case of emerging economies, Mati and Thorton (2008) suggest that exchange rate depreciation increases the probability of success of consolidation. In contrast, Gupta, Baldacci, Clements, and Tiongson (2005) find that exchange rate depreciation in emerging economies is associated with a higher probability of ending a spell of fiscal adjustment.…”

Section: State Of the Debatementioning

confidence: 99%

How much is a lot? The maximum size of fiscal adjustments

Escolano

Jaramillo

Mulas‐Granados

2018

Journal of Applied Economics

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The sizeable fiscal consolidation required to stabilize the debt-to-GDP ratios in several countries in the aftermath of the global crisis raises a crucial question on its feasibility. To answer this question, we propose a methodology to identify historical fiscal adjustment episodes for countries that both needed and wanted to adjust in order to stabilize debt to GDP. We identify 91 adjustment episodes in 49 countries during 1945-2014. We find that countries typically improved their cyclically adjusted primary balances by close to 5 percent of GDP. We also observe that countries make substantial efforts to stabilize debt, but ease their primary balances once this objective is achieved, without getting back to their initial lower debt-to-GDP ratio. Consolidations were larger when sustained over time and the initial deficit was high. Fiscal adjustments were also larger when accompanied by monetary easing and, to a lesser extent, by an improvement in credit conditions.

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Section: State Of the Debatementioning

confidence: 99%

How much is a lot? The maximum size of fiscal adjustments

Escolano

Jaramillo

Mulas‐Granados

2018

Journal of Applied Economics

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“…Some features outstand from mean comparison between the groups: episodes with no debt reduction are in general associated with smaller accumulated increase in CAPB, higher accumulated growth and higher investment; revenue-based episodes are associated with lower increase in primary balance (not adjusted) but no statistically distint feature in other variables. 19 18 Baldacci et al (2006) and Mati and Thornton (2008) investigate conditions for fiscal consolidations in emerging markets to be successful in terms of improving primary balances and achieving debt sustainability. Purfield (2003) does a similar analysis for transition economies.…”

Section: Descriptive Behaviour Around Episodesmentioning

confidence: 99%

Effects of Fiscal Consolidations in Latin America

Diniz

2018

IMF Econ Rev

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We use new data on cyclically adjusted primary balances for Latin America and the Caribbean to estimate effects of fiscal consolidations on GDP and some of its components. Identification is conducted through a doubly-robust estimation procedure that controls for non-randomness in the "treatment assignment" by inverse probability weighting and impulse responses are generated by local projections. Results suggest output contraction by more than one percent on impact, with economy starting to recover from the second year on. Composition effects indicate that revenuebased adjustments are way more contractionary than expenditure-based ones. Disentangling effects between demand components, we find consumption being in general less responsive to consolidations than investment, although nonlinearities associated to initial levels of debt and taxation might play an important role.

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“…McDermott and Wescott (1996) and Barrios and others (2010) do not find any conclusive evidence regarding the effect of the exchange rate devaluation in facilitating successful fiscal consolidations. In the case of emerging economies, Mati and Thorton (2008) suggest that exchange rate depreciation increases the probability of success of consolidation. In contrast, Gupta and others (2005) find that exchange rate depreciation in emerging economies is associated with a higher probability of ending a spell of fiscal adjustment.…”

Section: State Of the Debatementioning

confidence: 99%

How Much is A Lot? Historical Evidence on the Size of Fiscal Adjustments

Escolano

Jaramillo²,

Mulas‐Granados³

et al. 2014

IMF Working Papers

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The sizeable fiscal consolidation required to stabilize the debt-to-GDP ratios in several countries in the aftermath of the global crisis raises a crucial question on its feasibility. To answer this question, we rely on historical evidence from a sample of 91 adjustment episodes of countries during 1945-2012 that needed and wanted to adjust in order to stabilize debt to GDP. We find that, in at least half the cases, countries improved their cyclically adjusted primary balances by close to 5 percent of GDP. We also observe that, while countries typically make substantial efforts to stabilize debt, once this objective is achieved, they tend to ease their primary balances and do not necessarily get back to their initial lower debt-to-GDP ratio. We find that consolidations tended to be larger when the initial deficit was high and adjustment efforts were sustained over time. Fiscal adjustments also tended to be larger when accompanied by an easing of monetary conditions and, to a lesser extent, by an improvement in credit conditions.

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The exchange rate and fiscal consolidation episodes in emerging market economies

Cited by 8 publications

References 13 publications

How much is a lot? The maximum size of fiscal adjustments

How much is a lot? The maximum size of fiscal adjustments

Effects of Fiscal Consolidations in Latin America

How Much is A Lot? Historical Evidence on the Size of Fiscal Adjustments

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