Macroeconomic Policies and Performance in Latin America

This paper provides new empirical evidence on macroeconomic policies and results in Latin America and the Caribbean (LAC), based on recent data for the region and the world at large. Our results show that: (i) both monetary and fiscal policies are counter- (pro-) cyclical when credibility is high (low), (ii) the accuracy of inflation-targeting central banks in meeting their targets rises with central bank independence and declines with country risk, (iii) intermediate exchange-rate regimes became less persistent than hard pegs and floats after the Asian crisis, (iv) exchange rate regimes do matter for inflation and growth – and regime transitions have significant output and inflation consequences (v) international differences in productivity growth do not track well real exchange rate (RER) trends and RER misalignments are not resolved by supply reforms that raise growth, (vi) LAC’s financial integration with international capital markets has increased significantly during the last decade, (vii) adverse foreign shocks explain a major part of LAC’s growth performance during the 1990s, and (viii) the composition of foreign capital flows does matter for growth.