The macroeconomics of the Latin American economic boom

This paper argues that the recent boom in the Latin Americaneconomies can be explained by the conjunction of two external factorsnot found together since the 1970s: strong commodity prices (more sofor hydrocarbons and mining products than for agricultural commodities);and exceptional external financing conditions. Concerning the latter, thekey development was the massive influx of capital during two periods of "exuberance" in international financial markets (between mid-2004 and April2006, and between mid-2006 and mid-2007);, particularly the second. It alsoargues for the importance of spreading and consolidating Latin America'stwo great (and complementary); macroeconomic policy innovations ofrecent years: countercyclical fiscal management (still confined to just a fewcountries); and active intervention in currency markets. Such interventionneeds to be based on a growing recognition that the real exchange rateought to be an explicit goal of macroeconomic policy.