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Taming volatility : fiscal policy and financial development for growth in the Eastern Caribbean (English)

The report is structured in four chapters that outline the main sources of volatility in the region and suggest ways to mitigate the impacts of that volatility on growth. Chapter one presents stylized facts associated with the growth performance of the Eastern Caribbean over the last 40 years. It contrasts the growth performance of the OECS with the rest of the Latin America region and shows that the two groups of countries have shown significant heterogeneity over the business cycle. The chapter also highlights some of the factors that might be responsible for the volatility of growth in the OECS, including the region’s exposure to natural disasters, high debt, and adverse developments in the financial sector. Chapter two provides new evidence on output volatility and the cyclicality of fiscal policy in the OECS and discusses why countries are better off avoiding a pro-cyclical fiscal policy stance. Chapter three assesses the level of financial development in the region as well as the relationship between financial development, growth, and volatility. The chapter also explores critical policy options to strengthen financial development in the OECS. Chapter four assesses empirically the combined effects of terms of trade volatility, fiscal policy (pro) cyclicality, and financial development on growth in the OECS and other countries using two complementary modeling approaches. First, through an econometric model using panel data for 175 countries over the period 1980-2010. Second, by using impulse-response analysis based on a structural model of the business cycle in the OECS region.

Details

  • Author

    Carneiro,Francisco Galrao

  • Document Date

    2016/06/29

  • Document Type

    Working Paper

  • Report Number

    AUS15511

  • Volume No

    1

  • Total Volume(s)

    2

  • Country

    OECS Countries,

  • Region

    Latin America & Caribbean,

  • Disclosure Date

    2016/07/12

  • Disclosure Status

    Disclosed

  • Doc Name

    Taming volatility : fiscal policy and financial development for growth in the Eastern Caribbean

  • Keywords

    Macro Economics & Fiscal Management;finance and markets;effect of volatility on growth;World Travel and Tourism Council;terms of trade volatility;terms of trade shock;cyclical fiscal policy;Junior Professional Associate;terms of trade growth;Financial Development and Growth;eastern caribbean central bank;effect on long-term growth;Return on Average Assets;business cycle;Fiscal policies;global financial crisis;real gdp;domestic financial market;interest rate shock;private sector credit;debt management strategy;increase in volatility;external economic shock;high growth rate;engine of growth;fiscal responsibility law;sovereign debt market;deposit insurance scheme;fiscal policy framework;Asset Management Corporation;partial credit guarantee;long term finance;output growth rate;economic growth rate;asset management companies;foreign direct investment;formal financial sector;Macroeconomics and Growth;supply chain effect;efficient resource allocation;net foreign asset;stable financial market;domestic economic activity;factor of production;SME credit risk;Macroeconomics & Growth;financial sector development;pool of candidates;asset price bubble;asset management company;natural disaster;small states;impulse response;tourism revenue;fiscal rule;government spending;exogenous shock;negative effect;global growth;international tourism;macroeconomic variable;small economy;output volatility;trade balance;natural hazard;world output;commodity exporter;small island;policy option;commodity price;fiscal framework;financial system;fiscal discipline;SME finance;fiscal consolidation;policy tool;positive shock;capital growth;external shock;increasing return;economic volatility;high debt;working capital;export performance;saving instruments;trade preference;government expenditure;foreign assistance;budgetary process;domestic credit;open economy;fiscal council;operational rules;Banking Supervision;monetary anchor;fiscal space;econometric model;public official;volcanic activity;institutional framework;economic sector;trade partner;high correlation;external vulnerability;currency board;program leader;fiscal institution;severe storms;regression results;government effort;insurance companies;graphical analysis;oil price;average values;risk sharing;high volatility;negative relationship;fiscal position;econometric estimate;leisure industry;Capital Investments;subsidiary right;tourism organization;sensitivity analysis;financial credit;financial growth;emergency situation;financial depth;information asymmetry;logistic support;fiscal target;social assistance;standard deviation;intrinsic characteristic;tourism sector;productivity growth;fiscal surplus;tourist arrival;public revenue;Public Spending;higher growth;industrialized economy;high commodity;marginal effect;currency union;empirical result;cross-country differences;home mortgage;global commodity;Credit Infrastructure;long-term finance;Financial Stability;external environment;panel data;aggregate demand;global economy;adverse events;regional growth;secondary market;applicable law;preferential trade;life insurance;downward spiral;banking sector;fiscal expenditure;fiscal authority;macroeconomic volatility;Fiscal Sustainability;fiscal practice;good performance;complementary factor;stabilization fund;cyclical deficit;expenditure ceiling;secured transaction;national market;policy stance;country risk;finance literature;insurance sector;real export;export revenue;positive relationship;designing policy;financial intermediaries;budget planning;financial programming;

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Citation

Carneiro,Francisco Galrao

Taming volatility : fiscal policy and financial development for growth in the Eastern Caribbean (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/563541468302600212/Taming-volatility-fiscal-policy-and-financial-development-for-growth-in-the-Eastern-Caribbean