Before the financial crisis of 2008, most governments lacked an institutional framework for handling financial policy. Central banks focused on monetary policy. They mostly used interest rates to influence inflation and output, believing such a focus could guarantee economic stability. But when it came to financial policy they were inclined to trust the invisible hand of the … [Read more...] about When Focusing on the Interest Rate is Not Enough
On Sept. 15 2008, Lehman Brothers filed for bankruptcy heralding the most serious financial crisis since the Great Depression. A couple of years after, I was at a conference and a senior (European) official gave a presentation entitled The Global Financial Crisis, Lessons for Latin America. I asked whether there was a typo. Shouldn’t that be lessons from Latin America?, I … [Read more...] about Banks and the Global Financial Crisis 10 Years On: Lessons from Latin America and the Caribbean
Policymakers in emerging economies have long suffered sudden stops, those paralyzing episodes in which foreign credit dries up. Such episodes can cause painful domestic adjustments that exact significant losses in GDP. But not all sudden stops are equal, and they do not all inflict the same amount of pain. Take the case of Latin America. During the Tequila Crisis, when foreign … [Read more...] about What Are the Antidotes to Sudden Stops?
An old Irish joke has a tourist in the rural west of Ireland asking a local if he knows how to get to Dublin. After a long pause and considerable thought, the local replies, “yes, but I wouldn’t start from here.” Unfortunately, with the highest overall fiscal deficit of any region of the world in 2017 (over 6% of GDP) this is a bit how it feels in Latin America and the … [Read more...] about The Big Adjustment: Fiscal Challenges for Latin America and the Caribbean
They are like exhibits in a gallery of dread: the Tequila Crisis of 1994; the Asian and Russian crises of 1997 and 1998, and the global financial crisis of 2008. They represent moments when foreign investors pulled away from Latin America and the Caribbean; when foreign credit and investment were withdrawn and the region suffered. They instill fear to this day. With a low … [Read more...] about Financial Integration: Friend or Foe of Low-Saving Countries?