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IS TIGHTER FISCAL POLICY EXPANSIONARY UNDER FISCAL DOMINANCE?: HYPERCROWDING OUT IN LATIN AMERICA
Author(s) -
GRUBEN WILLIAM C.,
WELCH JOHN H.
Publication year - 2010
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2009.00062.x
Subject(s) - economics , latin americans , fiscal policy , error correction model , dominance (genetics) , monetary economics , interest rate , macroeconomics , cointegration , econometrics , political science , biochemistry , chemistry , law , gene
Hypercrowding out occurs when fiscally dominated governments' domestic credit demands are so intrusive to a nation's financial system that a move toward fiscal surplus lowers interest rates and increases growth. We sample nine Latin American countries to test for these relationships. The impulse‐response results of vector error correction models, six nations test positive for these two connections, suggesting market concern despite recent efforts toward fiscal balance. ( JEL E430, E620, O230, O540)