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Original Sin and Procylical Fiscal Policy: Two Sides of the Same Coin?

Original Sin and Procylical Fiscal Policy: Two Sides of the Same Coin? by Gustavo Adler
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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.
International Monetary Fund; September 2008
27 pages; ISBN 9781452752105
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Title: Original Sin and Procylical Fiscal Policy: Two Sides of the Same Coin?
Author: Gustavo Adler
 
ISBNs
1451915209
9781451870671
9781451915204
9781452752105