Essays on Fiscal Consolidation and Monetary Policy

Essays on Fiscal Consolidation and Monetary Policy

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The second chapter analyzes the effects of jurisdictional uncertainty and capital controls on cross-country real interest rate differentials. The inspiration comes from an article by Arida, Bacha, and Lara-Resende (2005), which argues specifically for the Brazilian case that, risks associated with the jurisdiction and currency inconvertibility are relevant determinants of the level of short-term real interest rates. A methodology based on their definition of jurisdiction uncertainty is formulated, and then a set of institutional variables is used together with an index of capital controls to test their conjecture and variants of it. The results are by and large unfavorable not only to Arida, Bacha, and Lara-Resende (2005)'s conjecture, but also to variants of their argument. The results further indicate that traditional monetary and fiscal factors are far more relevant to explain the level of short-term real interest rates than the binomial jurisdictional uncertainty/currency inconvertibility is.They find that fiscal adjustments which rely primarily on spending cuts on transfers and the government wage bill (a€œType Ia€ adjustments, under their terminology) have a better chance of being successful and are expansionary. On the contraryanbsp;...


Title:Essays on Fiscal Consolidation and Monetary Policy
Author:
Publisher:ProQuest - 2007
ISBN-13:

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