IS TIGHTER FISCAL POLICY EXPANSIONARY UNDER FISCAL DOMINANCE?: HYPERCROWDING OUT IN LATIN AMERICA |
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| Authors: | WILLIAM C GRUBEN JOHN H WELCH |
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| Institution: | 1. Vice President and Senior Economist, Research Department, Federal Reserve Bank of Dallas, 2200 North Pearl Street, Dallas, TX 75201. Phone 214‐922‐5155, E‐mail william.c.gruben@dal.frb.org;2. Senior Vice President, Sovereign Strategy, Lehman Brothers. Phone 212‐526‐5843, E‐mail john.welch@lehman.com |
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| Abstract: | 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) |
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