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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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Shocks stemming from Brazil - the large neighbor in South America - have historically been a source of concern for policy-makers in other countries of the region. This paper studies the importance of Brazil’s influence on its neighboring economies, documenting trade linkages over the last two decades and quantifying spillover effects in a Vector Auto Regression setting. While trade linkages with Brazil are significant for the Southern Cone countries (Argentina, Bolivia, Chile, Paraguay, and Uruguay), they are very weak for others. Consistent with this evidence, econometric results show that, while the Southern Cone economies (especially Mercosur’s members) are vulnerable to output shocks from Brazil, the rest of South America is not. Spillovers can take two different forms: the transmission of Brazil-specific shocks and the amplification of global shocks—through their impact on Brazil’s output. Finally, we also find suggestive evidence that depreciations of Brazil’s currency may not have significant impact on output of its key trading partners.

Finance --- Business & Economics --- Investment & Speculation --- Investments, Foreign --- Brazil --- Foreign economic relations. --- Exports and Imports --- Foreign Exchange --- Investments: General --- Macroeconomics --- Externalities --- Trade: General --- Investment --- Capital --- Intangible Capital --- Capacity --- International economics --- Currency --- Foreign exchange --- Spillovers --- Exports --- Depreciation --- Real exchange rates --- Real effective exchange rates --- Financial sector policy and analysis --- International trade --- National accounts --- International finance --- Saving and investment

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We study the history of terms-of-trade booms (during 1970–2012), with a focus on Latin America, through the prisms of a simple metric that quantifies the associated income windfall. We also document saving patterns during these episodes and propose a measure of how much of the income windfall was saved. We find that Latin America‘s terms-of-trade shocks of the last decade have not differed much in magnitude from those observed during the 1970s, but that the associated windfall have been substantially larger. While aggregate saving increased more than in past episodes, the share of the windfall saved (the marginal saving rate) seems to be lower, suggesting that greater aggregate saving reflects mainly the sheer size of the windfall rather than a greater 'effort' to save it. Finally, we find evidence that, while savings during the boom help to increase post-boom income, the composition of such savings matters. Specifically, in past episodes, savings allocated to foreign asset accumulation appear to have contributed more to post-boom income than those devoted to domestic investment.

International trade --- Terms of trade. --- Competition, International --- Prices --- Econometric models. --- Exports and Imports --- Macroeconomics --- Macroeconomics: Consumption --- Saving --- Wealth --- Trade: Other --- Open Economy Macroeconomics --- Personal Income, Wealth, and Their Distributions --- International Investment --- Long-term Capital Movements --- Current Account Adjustment --- Short-term Capital Movements --- Empirical Studies of Trade --- International economics --- Personal income --- Domestic savings --- Foreign assets --- Current account balance --- Terms of trade --- National accounts --- External position --- Balance of payments --- Income --- Saving and investment --- Investments, Foreign --- Economic policy --- nternational cooperation --- Bolivia

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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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The strong US policy response to the 2008-09 financial crisis raised concerns about its impact (spillovers) on other countries, with great focus on the monetary stimulus but little attention to fiscal policy, despite their combined deployment. Using a sign-restricted structural VAR approach, we study the trade spillovers of the post-crisis policy mix, by assessing the joint impact of monetary and fiscal policy. We find that aggregate trade effects, as reflected in the trade balance, varied across time, reflecting the different timing of fiscal and monetary stimuli, with overall positive spillovers in the immediate aftermath of the crisis. At the same time, reflecting the different transmission mechanisms of monetary policy, we find that the effects differed greatly between trading partners with fixed and flexible exchange rates. In general, our results highlight (i) the importance of studying fiscal and monetary policy spillovers jointly in order to avoid attenuation bias from omitted variables; and (ii) that trading partners’ exchange rate regimes are of first order importance in determining the impact of policy spillovers.

Exports and Imports --- Financial Risk Management --- Foreign Exchange --- Public Finance --- Monetary Policy --- Empirical Studies of Trade --- Fiscal Policy --- Financial Crises --- Trade Policy --- International Trade Organizations --- International economics --- Macroeconomics --- Currency --- Foreign exchange --- Economic & financial crises & disasters --- Trade balance --- Fiscal policy --- Exchange rate arrangements --- Financial crises --- Trade policy --- International trade --- Balance of trade --- Commercial policy --- United States