The document seeks to analyze the role of governmental institutions in the policymaking processes across Latin American countries. This being said, the authors claim that the level of institutional quality plays a key role in countries’ ability to implement counter-cyclical macroeconomic policies. Furthermore, the document highlights that developing countries are unable to adopt countercyclical monetary and fiscal policies due to financial imperfections and unfavorable political-economy conditions. In order to assess these claims, the researchers introduce a sample of 115 industrial and developing countries for the 1984-2008 period.
The paper is organized as follows. After a brief introduction, section two thoroughly describes the data sources used and presents some stylized facts about the cross-country relations between policy cyclicality and institutional quality. Meanwhile, section three discusses the authors’ empirical strategy to assess the relationship between the quality of institutions and macroeconomic policies. Finally, the panel data evidence is reported in chapter four, whereas section five offers some concluding arguments.
To conclude, the authors claim that the results portray how countries with strong institutions tend to adopt counter- cyclical macroeconomic policies, this being reflected in their extended monetary policy and fiscal policy rules.