Do Good Institutions Promote Counter-Cyclical Macroeconomic Policies?
نویسندگان
چکیده
The literature has argued that developing countries are unable to adopt counter-cyclical monetary and fiscal policies due to financial imperfections and unfavorable politicaleconomy conditions. Using a world sample of 115 industrial and developing countries for 1984-2008, we find that the level of institutional quality plays a key role in countries' ability to implement counter-cyclical macroeconomic policies. The results show that countries with strong (weak) institutions adopt counter(pro-) cyclical macroeconomic policies, reflected in extended monetary policy and fiscal policy rules. The threshold level of institutional quality at which monetary and fiscal policies are a-cyclical is found to be similar. JEL codes: E43, E52, E62 * César Calderón, The World Bank, 1818 H. Street, NW, Washington, DC 20433. 202-458-7214. [email protected]. Roberto E. Duncan, Assistant Professor, Department of Economics, Ohio University, 349 Bentley Hall Annex, Athens, OH 45701. 740-593-2040. [email protected]. Klaus Schmidt-Hebbel, Economic Research Division, Central Bank of Chile, Agustinas 1180, Santiago, Chile. 56-2-670-2386, [email protected]. The views in this paper are those of the authors and do not necessarily reflect the views of the Central Bank of Chile, the Federal Reserve Bank of Dallas, or the Federal Reserve System.
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