{
  "title": "Original Sin and Procyclical Fiscal Policy: Two Sides of the Same Coin?",
  "publication": "IMF Working Papers, September 1, 2008",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/original-sin-and-procylical-fiscal-policy-two-sides-of-the-same-coin-22277",
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  "summary": "The paper develops a simple model of sovereign debt where default both through direct repudiation and through inflation are possible and give rise to (endogenous) constraints on the currency composition and the level of public debt.",
  "sections": [
    {
      "heading": "Model and mechanisms",
      "content": "- Develops a simple model of sovereign debt where default is possible through two channels: direct repudiation and inflation.\n- Default possibilities generate endogenous constraints on:\n  - the currency composition of public debt, and\n  - the level of public debt.\n- Weak monetary institutions are modeled as inability to commit to price stability, which makes inflation default feasible."
    },
    {
      "heading": "Key findings",
      "content": "- Procyclicality of fiscal policy in EMEs can arise as a by-product of the \"original sin\".\n- Both \"original sin\" and procyclical fiscal policy can be explained by the presence of weak monetary institutions that cannot commit to price stability.\n- Strengthening monetary institutions in EMEs would:\n  - lead the \"original sin\" to fade away, and\n  - improve the cyclical properties of fiscal policy."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Reinforce monetary institutions to enhance credibility and commitment to price stability.\n- By improving monetary commitment mechanisms, policymakers can reduce reliance on foreign-currency liabilities (addressing \"original sin\") and mitigate procyclical fiscal behavior."
    },
    {
      "heading": "Publication and metadata",
      "content": "- Author: Gustavo Adler\n- Date: September 1, 2008\n- Series: Working Paper No. 2008/209\n- Issue: 209\n- Volume: 2008\n- Pages: 27\n- DOI: https://doi.org/10.5089/9781451870671.001\n- Stock No: WPIEA2008209\n- ISBN: 9781451870671\n- ISSN: 1018-5941\n- Subjects: Currencies, Expenditure, Fiscal policy, Private consumption, Public debt\n- Keywords: WP\n\nSource: IMF Working Papers — \"Original Sin and Procyclical Fiscal Policy: Two Sides of the Same Coin?\" by Gustavo Adler (September 1, 2008).\n\n---\n\n Content in this bundle\n\n- wp08209\n  - wp08209 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp08209 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/original-sin-and-procylical-fiscal-policy-two-sides-of-the-same-coin-22277"
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    "Authors: Gustavo Adler",
    "Published: September 1, 2008",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451870671.001",
    "Develops a simple model of sovereign debt where default is possible through two channels: direct repudiation and inflation.",
    "Default possibilities generate endogenous constraints on:",
    "Weak monetary institutions are modeled as inability to commit to price stability, which makes inflation default feasible.",
    "Procyclicality of fiscal policy in EMEs can arise as a by-product of the \"original sin\".",
    "Both \"original sin\" and procyclical fiscal policy can be explained by the presence of weak monetary institutions that cannot commit to price stability.",
    "Strengthening monetary institutions in EMEs would:",
    "Reinforce monetary institutions to enhance credibility and commitment to price stability.",
    "By improving monetary commitment mechanisms, policymakers can reduce reliance on foreign-currency liabilities (addressing \"original sin\") and mitigate procyclical fiscal behavior.",
    "Author: Gustavo Adler",
    "Date: September 1, 2008",
    "Series: Working Paper No. 2008/209",
    "Issue: 209",
    "Volume: 2008",
    "Pages: 27",
    "DOI: https://doi.org/10.5089/9781451870671.001",
    "Stock No: WPIEA2008209",
    "ISBN: 9781451870671",
    "ISSN: 1018-5941",
    "Subjects: Currencies, Expenditure, Fiscal policy, Private consumption, Public debt",
    "Keywords: WP",
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