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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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
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:	Date Event May 2022 Published 21 September 2020 Available 12 August 2020 Accepted
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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