Post-Crisis Recovery: When Does Increased Fiscal Discipline Work?

October 13, 2006

Preview Citation

Format: Chicago

Pritha Mitra. Post-Crisis Recovery: When Does Increased Fiscal Discipline Work?, (USA: International Monetary Fund, 2006) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Emerging market financial crises during the late 1990s were marked by sudden withdrawals of funds by foreign creditors, resulting in production declines. The IMF favored positive signals to potential foreign creditors and initially recommended disciplined fiscal policy during the height of crisis, countering standard Keynesian recommendations of expansionary fiscal stimulus. This paper formulates an open-economy general equilibrium model for resolving this policy conundrum and analyzing the impact of disciplined fiscal policy on post-crisis recovery. The model demonstrates via simulations that disciplined fiscal policy will improve (worsen) post-crisis recovery in the presence (absence) of appropriately defined production flexibility.

Subject: Collateral, Financial institutions, Fiscal policy, Labor, Public debt, Revenue administration

Keywords: Collateral, Collateral constraint, East Asia, Emerging markets, Financial crisis, Firm hire, Fiscal policy, Goods firm, Long-term debt, Physical assets, Tradable good, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/219
Stock No:

WPIEA2006219
ISBN:

9781451864793
ISSN:

1018-5941

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