Policymakers increasingly view short-term nominal interest rates as the main instrument of monetary policy, often in conjunction with some inflation target. Interest rates on short-term indexed government debt (i.e., a real interest rate) have also been used as policy instruments. To understand...

This article challenges recent findings that democracy has sizable effects on economic growth. As extensive political science research indicates that economic turmoil is responsible for causing or facilitating many democratic transitions, the paper focuses on this endogeneity concern. Using a...

This paper analyzes the fiscal and monetary policy responses to crises in Latin America over the last 40 years. We argue that, on average, Latin American countries have “graduated” in terms of their policy responses in the sense that they have been able to switch from procyclical to...

Using non-linear methods, we argue that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing. In the case of OECD countries, the problem originates in the fact that, contrary...

This paper studies the social implications of fiscal policy responses to crises in Latin America over the last 40 years and in the Eurozone during the aftermath of the global financial crisis. We focus on the behavior of four social indicators: the poverty rate, income inequality, unemployment...

Should inflation be thought of as “just another tax?” The theoretical basis for doing so dates back to Phelps (1973) and has been greatly refined ever since. Since optimal taxation minimizes the deadweight loss by equalizing the marginal distortions of all available taxes, including the...

Developing countries have typically pursued procyclical macroeconomic policies, which tend to amplify the underlying business cycle (the "when-it-rains-it-pours" phenomenon). There is, however, evidence to suggest that about a third of developing countries have shifted from procyclical to...

Based on a novel quarterly dataset for 52 countries for the period 1970-2011, we analyze the use and cyclical properties of reserve requirements (RR) as a macroeconomic stabilization tool and whether RR policy substitutes or complements monetary policy. We find that (i) around two thirds of...