Working Papers

The Silent Revolution of Institutions and Macroeconomic Stability

CODE: WP-649
PUBLISHED: November 2008
RELATED TOPICS: Government and Democracy


Economic instability and notable transformations have occurred in similarly across Latin American institutions in the past decades. This article analyzes the different influences changes in fiscal institutions and political systems have had upon fiscal results, inflation, probability of occurrence, and the costs of banking crises. It concludes that while fragmentation of political power tended to weaken fiscal discipline, the reform of fiscal institutions corrected this trend. Greater political competence and restrictions on executive power made the advances of central banks possible. In turn this mitigated possible determinants of financial crises and reduced the long-term costs of crises. This study found that political systems deserve much of the credit for the economic stabilization.

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