find that the coefficient on government debt is positive and statistically significant, which is an indication of fiscal behavior that takes into account the government’s intertemporal budget constraint and, therefore, long-term fiscal solvency concerns. Its magnitude, however, is not economically large. In our sample of Caribbean countries, the fiscal policy reaction to an increase of one percentage point in the lagged debt-to-GDP ratio is limited to about 0.02 percentage point, after controlling for other relevant factors, during the period 1980–2018. 6
Front Matter Page Western Hemisphere Department Contents I. Introduction and Background II. Empirical Strategy III. Monetary Policy Power IV. Monetary Policy Reaction Function V. Monetary Policy Transmission and Impact VI. Conclusions and Challenges Ahead Figures 1. Financial System Developments 2. Determinants of Consumer Price Variability 3. Central Bank Reaction to an Increase in Consumer Prices 4. Central Bank Reaction to an Increase in Core Prices 5. Central Bank Reaction to an Increase in Food Prices 6. Central Bank
in higher interest rates of 91 day bills, indicating a tightening of the monetary policy stance. Figure 3. Central Bank Reaction to an Increase in Consumer Prices (Impulse-response functions to a 1 std. dev. shock to consumer prices) Source: author’s calculations based on data from the Central Bank of Bolivia. The policy reaction to an increase in the price level also includes an appreciation of the central bank nominal exchange rate . This is consistent with the use of the exchange rate as an instrument to control inflation. However, the amount of
Mexico V. Hugo Juan-Ramón During the late 1980s and early 1990s Mexico enjoyed strong capital inflows in response to an effective stabilization program, privatizations, structural reforms, and the Brady Plan. In 1994, in reaction to an increase in interest rates abroad and domestic political strife, capital began to flow out of the country and a financial crisis erupted on December 20, 1994. In response, Mexico adopted a floating exchange rate regime; prevented a collapse in the payments system; and implemented reforms to the pension system, and to the
employment rate will fall, while if it rises less fast, the employment rate will rise. What would make labor productivity rise faster than GDP per working age capita? A likely candidate is that wages are growing “too fast”. To see this, note that labor productivity can rise for two reasons: because of labor-augmenting technological progress, or because firms replace labor by capital in reaction to an increase in the relative price of labor. If labor-productivity rises because of labor-augmenting technological progress, it is likely that the increase in labor
c { > = < } 0 ⇔ V w c { > = < } 0. ( 9 ) As the trade union is a Stackelberg leader with respect to the central bank, the equilibrium effect dw/dc is equal to the union’s wage-setting reaction to an increase in conservatism. With w c identified, the sign of the employment effect depends inversely on the real wage reaction (by substituting in equations (5) , (8) , and (9) ): d