Do Good Institutions Promote Countercyclical Macroeconomic Policies?

Abstract

The literature has argued that developing countries are unable to adopt countercyclical monetary and fiscal policies due to financial imperfections and unfavourable political-economy conditions. Using a world sample of up to 112 industrial and developing countries for 1984-2008, we find that the level of institutional quality plays a key role in countries' ability and willingness to implement countercyclical macroeconomic policies. Countries with strong (weak) institutions adopt countercyclical (procyclical) macroeconomic policies, reflected in extended monetary policy and fiscal policy rules. The threshold levels of institutional quality at which policies are acyclical are found to be similar for monetary and fiscal policy. and Mexico were among many developing countries that adopted expansionary policies in response to the 2008-09 global financial crisis and subsequent domestic cyclical weakness.3 By unwillingness, we refer to the case in which policy-makers do not have sufficient incentives to pursue certain policies, even when they are able to do so.

Institutions: Key variable for economic development in Latin America

“…This research therefore complements a recent body of empirical work comparing emerging/developing countries to developed countries, which incorporates institutional variables interacting with business cycles (the output gap) into both policy equations of deviations of either nominal interest rates from trend or real government spending, such as Calderón et al (2016). There is indeed a vast literature on institutions and economic policies, including Acemoglu et al (2003), Dollar and Kraay (2003), Bravo-Ortega and De Gregorio (2005), Loayza et al (2005), Zettelmeyer (2006), and Calderón and Fuentes (2012).…”

WITHDRAWN: Re-Investigation of Institutional Quality and Ecological Footprint: A Case Study of Pakistan

“…For Institutional quality, 12 point ICRG's index is used for the calculation of a single index. ICRG's index for IQ is a comprehensive index also used by (Calderón, Duncan and Schmidt-Hebbel, 2016;Asif and Majid, 2018;Nawaz et al, 2018). As time-series data is used in this study and non-stationarity of the time series data is a serious issue, which may lead to spurious results.…”

El gasto público en México y su postura fiscal procíclica (1980-2016)

“…Es posible que un país que en una fase expansiva ejerció un déficit o un superávit no correspondiente con las tasas de crecimiento se vea sujeto a seguir manteniendo su postura procíclica, como es el caso de países de bajos ingresos o en vías de desarrollo que no cuentan con un desarrollo institucional que permita el correcto manejo del gasto de acuerdo con el ciclo de la economía (Woo, 2009;Kaminsky et al, 2004;Calderón et al, 2016).…”

“…No obstante, para algunos países resulta complicado, debido a su bajo desarrollo institucional que conlleva niveles significativos de deuda, débil estructura económica y política, problemas de corrupción, etc. (Calderón, Duncan y Schmidt-Hebbel, 2016), factores que impiden o limitan el margen de acción o bien los resultados requeridos. Según Tapsoba, Noumon y York (2017), la política fiscal procíclica podría estar explicada por deficiencias en materia de pronósticos causadas por la débil capacidad para realizarlos, aunado a la falta de datos y de capacidades técnicas.…”