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Following public finances : the mirage of MDBs countercyclicality
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Avellán, Leopoldo, Galindo, Arturo J. and Lotti, Giulia (2022) Following public finances : the mirage of MDBs countercyclicality. The Quarterly Review of Economics and Finance, 84 . pp. 372-385. doi:10.1016/j.qref.2020.08.001 ISSN 1062-9769.
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Official URL: http://dx.doi.org/10.1016/j.qref.2020.08.001
Abstract
Fiscal policy and net capital inflows in developing countries are procyclical. A large amount of literature has examined this phenomenon and explored its consequences for aggregate fluctuations. Multilateral development banks (MDBs) are an important source of external finance for governments and play a key role in financing the execution of fiscal policy. Hence, understanding the behavior of MDB flows is key to gauge their contribution to macroeconomic volatility. This paper investigates the co-movement of sovereign lending from MDBs and private creditors with government expenditure, and finds that multilateral sovereign lending follows government expenditure, and that this correlation does not change if the government is running a surplus or a deficit. This finding raises doubts on the feasibility of MDBs to be counter-cyclical, unless the governments themselves implement counter-cyclical fiscal policies.
Item Type: | Journal Article | ||||||||
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Journal or Publication Title: | The Quarterly Review of Economics and Finance | ||||||||
Publisher: | Elsevier | ||||||||
ISSN: | 1062-9769 | ||||||||
Official Date: | May 2022 | ||||||||
Dates: |
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Volume: | 84 | ||||||||
Page Range: | pp. 372-385 | ||||||||
DOI: | 10.1016/j.qref.2020.08.001 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access |
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