The role of credibility in the cyclical properties of macroeconomic policies in emerging economies

Calderón, César; Duncan, Roberto; Schmidt-Hebbel, Klaus

doi:10.1007/bf02659617

Cited by 28 publications

(20 citation statements)

References 17 publications

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“…Note: GDP growth corresponds to GDP growth in each year minus the average GDP growth for the previous six years. 7 Calderón et al (2004) study the impact of credibility in the cyclical properties of macroeconomic policies in emerging economies. 8 The sample includes the 20 countries listed in Table 1.…”

Section: Implementation Of Inflation Targeting In An Emerging Marmentioning

confidence: 99%

Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience^*

Céspedes¹,

Soto²

2005

International Finance

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This paper assesses the challenges that the lack of credibility poses for the implementation of inflation targeting, and for the design of inflation stabilization processes in emerging market economies. We also discuss the role that credibility has played in rationalizing the main elements of the disinflationary process in Chile during the 1990s and in explaining the grounds behind the monetary policy framework's changes in Chile at the end of the last decade.

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Section: Implementation Of Inflation Targeting In An Emerging Marmentioning

confidence: 99%

Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience^*

Céspedes¹,

Soto²

2005

International Finance

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“…The difference between these two specifications is supposed to be picked up by the inflation deviation term and the constant. 14 We reported in section 2 unconditional estimates of cross-country correlations between policy cyclicality and the quality of institutions, shown in Figures 1 and 2. The model introduced in this section allows for estimation of conditional measures of policy cyclicality in full panel samples, controlling for other policy determinants in the context of behavioral equations.…”

Section: Model and Empirical Strategymentioning

confidence: 99%

“…Those regressions are not reported in this paper but are available from the authors upon request. 14 This holds provided that the correlation between nominal and real exchange rate is very high or, alternatively, if the foreign CPI inflation (in deviations from its trend) is relatively constant over time. 15 If α4 and α5 are not statistically significant we can also conclude that monetary policy is not only a-cyclical but also irresponsive to changes in the level of institutional quality.…”

Section: Model and Empirical Strategymentioning

confidence: 99%

Do Good Institutions Promote Counter-Cyclical Macroeconomic Policies?

Calderón¹,

Duncan²,

Schmidt-Hebbel³

2012

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The literature has argued that developing countries are unable to adopt counter-cyclical monetary and fiscal policies due to financial imperfections and unfavorable politicaleconomy conditions. Using a world sample of 115 industrial and developing countries for 1984-2008, we find that the level of institutional quality plays a key role in countries' ability to implement counter-cyclical macroeconomic policies. The results show that countries with strong (weak) institutions adopt counter-(pro-) cyclical macroeconomic policies, reflected in extended monetary policy and fiscal policy rules. The threshold level of institutional quality at which monetary and fiscal policies are a-cyclical is found to be similar.

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“…These factors were explored in Calderon et al (2003) for a set of eleven EMEs. They …nd that the ability of these EMEs to conduct both countercyclical …scal and monetary policies is determined by the credibility of their policies.…”

Section: Introductionmentioning

confidence: 99%

Monetary Policy in Emerging Market Economies: What Lessons from the Global Financial Crisis?

Coulibaly

2012

SSRN Journal

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During the 2008-2009 global financial crisis, emerging market economies (EMEs) loosened monetary policy considerably to cushion the shock. In previous crises episodes, by contrast, EMEs generally had to tighten monetary policy to defend the value of their currencies, to contain capital flight, and to bolster policy credibility. Our study aims to understand the factors that enabled this remarkable shift in monetary policy, and also to assess whether this marks a new era in which EMEs can now conduct countercyclical policy, more in line with advanced economies. The results indicate statistically significant linkages between some characteristics of the economies and their ability to conduct countercyclical monetary policy. We find that macroeconomic fundamentals and lower vulnerabilities, openness to trade, and international capital flows, financial reforms, and the adoption of inflation targeting all facilitated the conduct of countercyclical policy. Of these factors, the most important have been the financial reforms achieved over the past decades and the adoption of inflation targeting. As long as EMEs maintain these strong economic fundamentals, continue to reform their financial sector, and adopt credible and transparent monetary policy frameworks such as inflation targeting, the conduct of countercyclical monetary policy will likely be sustainable.

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The role of credibility in the cyclical properties of macroeconomic policies in emerging economies

Abstract: Monetary and fiscal policy, cyclical stance, policy rules,

Cited by 28 publications

References 17 publications

Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience^*

Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience^*

Do Good Institutions Promote Counter-Cyclical Macroeconomic Policies?

Monetary Policy in Emerging Market Economies: What Lessons from the Global Financial Crisis?

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The role of credibility in the cyclical properties of macroeconomic policies in emerging economies

Abstract: Monetary and fiscal policy, cyclical stance, policy rules,

Cited by 28 publications

References 17 publications

Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience*

Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience*

Do Good Institutions Promote Counter-Cyclical Macroeconomic Policies?

Monetary Policy in Emerging Market Economies: What Lessons from the Global Financial Crisis?

Contact Info

Product

Resources

About

Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience^*

Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience^*