Sharp fluctuations in cyclical conditions observed in industrial and developing countries alike have renewed the debate on the scope and the effectiveness of stabilization policies. Traditionally it has been argued that developing countries are unable to adopt counter-cyclical monetary and...

The literature has argued that developing countries are unable to adopt countercyclical monetary and fiscal policies due to financial imperfections and unfavorable political-economy conditions. Using a world sample of 115 industrial and developing countries for 1984-2008, we find that the level...