This paper explores the implications of different strategies for financing the fiscal costs of twin crises for inflation and depreciation rates. We use a first-generation type model of speculative attacks which has four key features: (i) the crisis is triggered by prospective deficits; (ii)...

In several countries temporary terms of trade improvements have led to a deterioration of the current account. Furthermore, many of these countries failed to attain greater post-boom growth rates. The point we make is that the structure of the fiscal process is critical in determining outcomes....

After decades of trial, error, and occasional regress the pieces of a successful Latin American economic model can be seen scattered among the leading economies of the region. The most traditional macroeconomic maladies of the emerging world - such as chronic fiscal imbalances and monetary...

In this paper we analyze the evolution of the Mexican economy between 1995 and 1998. The remarkable quick recovery seen in aggregate activity has not been uniform across the economy. The tradable sector has grown strongly, while the non-tradable sector has recuperated only sluggishly. This...

This study analyzes the adjustment to a fiscal reform in a dependent economy. It evaluates the economic factors that are relevant for making the choice between a cut in employment versus a cut in wages as a means of reducing the fiscal wage bill. We demonstrate that in the presence of costly...

We consider a model in which the level of taxes and seignorage are too low to finance government expenditures and debt service. Government debt will therefore grow without bound, implying the eventual need to change policy. Starting with utility maximization, we analyze the effect of the...

The paper examines international issues that arise in the design and evaluation of macroeconomic policy rules. It begins with a theoretical investigation of the effects of fiscal and monetary policy in a two-country rational expectations model with staggered wage and price setting and with...

The paper considers the implications of the rational expectations New Classical Macroeconomics revolution for the 'rules versus discretion' debate. The following issues are covered: 1) The ineffectiveness of anticipated stabilization policy, 2) Non-clausal models and rational expectations, 3)...

This paper is about the size of fiscal multipliers and the sources of recovery from the Great Depression. Its baseline result is that 89.1 percent of the 1939:Q1-1941:Q4 recovery can be attributed to fiscal policy innovations, 34.1 percent to monetary policy innovations and the remaining -23.2...

The paper presents empirical findings regarding the economic policy consequences of constitutional arrangements, in three different dimensions. First, the data are consistent with several theoretical predictions about the consequences of electoral rules and forms of government for fiscal policy...