Conventional wisdom has held that a fixed exchange rate regime induces more fiscal discipline, but Tornell and Velasco (1995, 1998) argue the opposite. Using a dynamic model with fragmented fiscal policymaking, this paper evaluates the two arguments in a single framework and shows that (1) future punishment against fiscal laxity exists under both fixed and flexible regimes; (2) fiscal authorities have a greater incentive to spend more today under fixed rates than under flexible rates; (3) in the presence of both factors above, fixed rates will induce more fiscal discipline only if the future punishment is sufficiently stronger than under flexible rates; and (4) neither fixed nor flexible rates could resolve the structural distortions caused by framented policy making, and fiscal centralization needs to be undertake to strengthen fiscal discipline.
Author/Editor: Sun, Yan ; IMF Treasurer’s Department
Series: Working Paper No. 03/78
Authorized for Distribution: April 1, 2003
The paper can be obtained here.
Posted on April 30th, 2003 by jl
Filed under: Economic Theory & Research | No Comments »
Speech by Horst K?r
Managing Director of the International Monetary Fund
Given at the 33rd Washington Conference of the Council of the Americas
Washington DC, April 29, 2003
Read it here.
Posted on April 30th, 2003 by jl
Filed under: Developmental Issues | No Comments »
The World Bank’s half-yearly report on East Asia shows that the external shocks, such as the Iraq crisis and the outbreak of Severe Acute Respiratory Syndrome (SARS), have put the region in a troubled and uncertain
environment, despite strong growth of nearly 6 percent over the last year. The update projects that growth will fall by almost a percentage point in 2003, to 5 percent, before rebounding in 2004. Bank officials nevertheless note that the region’s fundamental strengths should enable it to withstand these short-term shocks, and grow faster than any other region in the world.
Read the full article and find a link to the full report here.
Posted on April 30th, 2003 by jl
Filed under: Regional Financial Concerns: Asia | No Comments »
This paper studies the question of how to achieve monetary policy credibility and price stability after a financial crisis. We draw stylized facts and conclusions from ten recent cases: Brazil (1999); Bulgaria (1997); Ecuador (2000); Indonesia (1997); Korea (1997); Malaysia (1997); Mexico (1994), Russia (1998); Thailand (1997); and Turkey (2001).
Among our conclusions, highlights include:
(i) monetary policy alone cannot stabilize;
(ii) floats bring nominal stability quickly in countries with low pre-crisis inflation and hard pegs have been at least narrowly successful for countries in deeper disarray;
(iii) in floats, early and determined tightening brings nominal stability and does not appear more costly for output;
(iv) monetary aggregate targeting rarely serves as a coherent framework for floats; informal or full-fledged inflation targeting offers more promise.
Author/Editor: Berg, Andrew ; Jarvis, Christopher J. ; Stone, Mark R. ; Zanello, Alessandro ; Research Department of the IMF
IMF Series: Working Paper No. 03/76
Authorized for Distribution: April 1, 2003
The paper can be obtained in PDF format here.
Posted on April 30th, 2003 by jl
Filed under: Economic Theory & Research | No Comments »
Another interesting commentary from the IHT, published on 29 April 2003. Taken from here.
Posted on April 29th, 2003 by jl
Filed under: Developmental Issues | No Comments »
