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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. This set up allows to show that procyclicality of fiscal policy in EMEs can arise as a by-product of the "original sin" and both can be explained by the presence of weak monetary institutions which cannot commit to price stability. The paper suggests that, as monetary institutions in EMEs strengthen, the "original sin" would fade away and the cyclical properties of fiscal policy would improve.

Fiscal policy --- Business cycles --- Financial crises --- Econometric models. --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Tax policy --- Taxation --- Government policy --- Crises --- Economic policy --- Finance, Public --- Macroeconomics --- Money and Monetary Policy --- Public Finance --- National Government Expenditures and Related Policies: General --- Debt --- Debt Management --- Sovereign Debt --- Fiscal Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Macroeconomics: Consumption --- Saving --- Wealth --- Public finance & taxation --- Monetary economics --- Expenditure --- Public debt --- Currencies --- Private consumption --- Expenditures, Public --- Debts, Public --- Money --- Consumption --- Economics

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Large fiscal financing needs, both in advanced and emerging market economies, have often been met by borrowing heavily from domestic banks. As public debt approached sustainability limits in a number of countries, however, high bank exposure to sovereign risk created a fragile inter-dependence between fiscal and bank solvency. This paper presents a simple model of twin (sovereign and banking) crisis that stresses how this interdependence creates conditions conducive to a self-fulfilling crisis.

Business & Economics --- Economic Theory --- Financial crises. --- Banks and banking. --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Finance --- Financial institutions --- Money --- Crises --- Banks and banking --- Bank loans --- Financial crises --- Risk --- Debts, Public --- Econometric models --- E-books --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Economics --- Uncertainty --- Probabilities --- Profit --- Risk-return relationships --- Bank credit --- Loans --- Banks and Banking --- Financial Risk Management --- Money and Monetary Policy --- Public Finance --- Industries: Financial Services --- Financial Markets and the Macroeconomy --- Money Supply --- Credit --- Money Multipliers --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Crises --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Debt Management --- Sovereign Debt --- Economic & financial crises & disasters --- Monetary economics --- Public finance & taxation --- Nonbank financial institutions --- Domestic debt --- Financial services industry --- Argentina

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Over the past two decades, most emerging market economies witnessed two key developments. A marked process of financial integration with the rest of the world, arguably turning these economies more vulnerable to global financial shocks; and an improvement of macroeconomic fundamentals, helping to increase their resiliency to these shocks. Against a backdrop of these opposing forces, are these economies more vulnerable to global financial shocks today than in the past? Have better fundamentals offset increasing financial integration? If so, what fundamentals matter most? We address these questions by examining the role of these two forces over the past two decades in amplifying or buffering the economic impact of these shocks. Our findings show that EMEs, with the exception of Emerging Europe, have become less vulnerable. Exchange rate flexibility and external sustainability are key determinants of the impact of these shocks, while the extent to which deeper financial integration is a source of vulnerability depends on the exchange rate regime.

Management --- Business & Economics --- Management Styles & Communication --- Financial risk. --- Financial crises. --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Business risk (Finance) --- Money risk (Finance) --- Crises --- Risk --- Financial crises --- Capital movements --- Foreign exchange administration --- Econometric models --- E-books --- Foreign exchange --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- International finance --- Exports and Imports --- Finance: General --- Foreign Exchange --- Financial Markets and the Macroeconomy --- Financial Aspects of Economic Integration --- International Business Cycles --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- General Financial Markets: General (includes Measurement and Data) --- International Investment --- Long-term Capital Movements --- International Lending and Debt Problems --- Finance --- Currency --- International economics --- Financial integration --- Exchange rate flexibility --- Emerging and frontier financial markets --- Foreign assets --- External debt --- Financial markets --- External position --- Financial services industry --- Investments, Foreign --- Debts, External --- Greece

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En los últimos 15 años, los países de América Latina realizaron enormes avances en el fortalecimiento de sus economías y la mejora de las condiciones de vida. Si bien el producto cayó temporalmente durante la crisis financiera mundial, la mayoría de las economías registraron una rápida recuperación. Sin embargo, la actividad económica en toda la región se ha estado enfriando y la región se enfrenta a un período de desafíos crecientes. Este libro argumenta que América Latina puede estar a la altura de estos desafíos, y las autoridades de la región ya están implementando reformas en educación, energía y otros sectores. Pero es necesario, y posible, profundizar la búsqueda de mejores condiciones de vida para los habitantes de América Latina.

Economic development -- Latin America. --- Latin America -- Economic conditions. --- Latin America -- Economic policy. --- Banks and Banking --- Exports and Imports --- Macroeconomics --- Public Finance --- Production and Operations Management --- Commodity Markets --- Fiscal Policy --- General Financial Markets: General (includes Measurement and Data) --- International Investment --- Long-term Capital Movements --- Debt --- Debt Management --- Sovereign Debt --- Finance --- International economics --- Investment & securities --- Public finance & taxation --- Commodity prices --- Public debt --- Fiscal stance --- Personal income --- Fiscal policy --- Prices --- Income --- Debts, Public --- Capital movements --- United States