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Post-Crisis Recovery: When Does Increased Fiscal Discipline Work?
Author:
Ms. Pritha Mitra
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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 219
Language:
English
Publication Date:
13 Oct 2006
DOI:
https://doi.org/10.5089/9781451864793.001
ISBN:
9781451864793
ISSN:
1018-5941
Pages:
43
Keywords:
WP; long-term debt; Financial crisis; Emerging markets; Fiscal policy; goods firm; tradable good; collateral constraint; firm hire; physical assets; Collateral; East Asia
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Emerging market financial crises during the late 1990s were marked by sudden withdrawals of funds by foreign creditors, resulting in production declines. The IMF favored positive signals to potential foreign creditors and initially recommended disciplined fiscal policy during the height of crisis, countering standard Keynesian recommendations of expansionary fiscal stimulus. This paper formulates an open-economy general equilibrium model for resolving this policy conundrum and analyzing the impact of disciplined fiscal policy on post-crisis recovery. The model demonstrates via simulations that disciplined fiscal policy will improve (worsen) post-crisis recovery in the presence (absence) of appropriately defined production flexibility.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund