Working Paper: NBER ID: w10780
Authors: Graciela L. Kaminsky; Carmen M. Reinhart; Carlos A. Végh
Abstract: Based on a sample of 104 countries, we document four key stylized facts regarding the interaction between capital flows, fiscal policy, and monetary policy. First, net capital inflows are procyclical (i.e., external borrowing increases in good times and falls in bad times) in most OECD and developing countries. Second, fiscal policy is procyclical (i.e., government spending increases in good times and falls in bad times) for the majority of developing countries. Third, for emerging markets, monetary policy appears to be procyclical (i.e., policy rates are lowered in good times and raised in bad times). Fourth, in developing countries - and particularly for emerging markets - periods of capital inflows are associated with expansionary macroeconomic policies and periods of capital outflows with contractionary macroeconomic policies. In such countries, therefore, when it rains, it does indeed pour.
Keywords: No keywords provided
JEL Codes: F41; E52; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic performance (P17) | net capital inflows (F21) |
| economic conditions (E66) | fiscal policy (E62) |
| economic growth (O49) | monetary policy (E52) |
| capital inflows (F21) | expansionary macroeconomic policies (E60) |
| capital outflows (F32) | contractionary macroeconomic policies (E65) |