Economic policy outside the corridor: Reflections on the global crisis and the Latin American experience

Abstract

These notes analyze the international crisis observing it through Latin American lenses. The exercise consists of interpreting some key events of the current global crisis in light of what we know about volatility, crises and stabilization policies in Latin America. The purpose is exploratory and focuses on aspects of the crisis that present analogies with events previously observed in the region. With this objective, a set of stylized facts about volatility, crises and collapses in Latin America is presented. The concept of “crisis” is analyzed, understood as an interaction between volatile stochastic processes and governance structures, and finally, consequences are drawn for macroeconomic stabilization policy in developed countries in situations in which the economy is outside the stability corridor, such as seems to be the case today. An important conclusion is that outside the corridor, macroeconomic policy demands may be qualitatively different, as the Latin American experience suggests; a region in which, due to the frequency of crises, problems of public debt sustainability, uncertainty about the effect of fiscal impulses, failures in coordination between policies and changes in the rules of the game are common.

JEL classification: E52 ; E60 ; G01