Monetary and Fiscal Policies in a Sudden Stop: Is tighter brigther

Abstract

This paper analyzes the fiscal and monetary policy response and their effects on output in a set of 22 external financial crisis episodes occurred since 1990. We find evidence that those countries that tightened monetary and fiscal policy during these crises, experienced larger output contractions than countries that followed a looser policy stance. Therefore having the flexibility to implement sensible policies during a SSS pays handsomely in terms of smaller recessions and lower volatility of output. 1 This paper was prepared for the project on Policy Responses to Sudden Stops in Capital Flows, sponsored by the InterAmerican Development Bank. We would like to thank very specially our research assistant Pablo Gluzmann (Universidad de La Plata) for his invaluable support. We are also grateful to the participants of the LACEA-LAMES 2007 Annual Meetings in Bogotá, Colombia and of the XXVI Meeting of the Latin American Network of Central Banks and Finance Ministries, IADB, Washington DC for very useful comments on a previous version of the paper.

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Cite this paper

@inproceedings{Ortiz2007MonetaryAF, title={Monetary and Fiscal Policies in a Sudden Stop: Is tighter brigther}, author={Alberto Ortiz and Pablo Ottonello and Federico Sturzenegger and Torcuato Di Tella and Ernesto Talvi}, year={2007} }