Capital flows, monetary stability and procyclical fiscal policy. The cases of Brazil, Chile, Colombia, Mexico and Per

Authors

  • Teresa López
  • Eufemia Basilio

DOI:

https://doi.org/10.7203/IREP.1.1.16456

Abstract

This paper analyzes the relationship between fiscal policy and capital flows for Brazil, Chile, Colombia. Mexico and Peru, for the period 1980-2016. The general hypothesis that guided the research argues that the massive and sudden inflows of short-term capital flows to developing and emerging economies oblige their central banks to keep the nominal exchange rate stable, with the consequent appreciation of the exchange rate real. Within the framework of the adoption of the macroeconomic model of inflation targets, this measure allows them to meet the established inflation target. This policy in turn forces its governments to implement procyclical fiscal measures to contain, at first, the monetary effect of capital flows on the monetary base, and subsequently the financial and macroeconomic effects caused by the adjustment in the exchange rate real. Consequently, macroeconomic policy measures, particularly monetary and fiscal, that are adopted to address these effects will directly impact economic growth.

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Published

2020-01-13

How to Cite

López, T., & Basilio, E. (2020). Capital flows, monetary stability and procyclical fiscal policy. The cases of Brazil, Chile, Colombia, Mexico and Per. International Review of Economic Policy-Revista Internacional De Política Económica, 1(1), 21–47. https://doi.org/10.7203/IREP.1.1.16456
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Issue

Vol. 1 No. 1 (2019)

Section

Articles

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