The Fiscal and Monetary History of Latin America: The case of Uruguay (1960-2014) 25 Mai, 2018

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The Fiscal and Monetary History of Latin America: The case of Uruguay (1960-2014)

In this paper, we analyze the fiscal and monetary history of Uruguay between 1960 and 2014. The aim is to explore the links between unfavorable fiscal and monetary policies and macroeconomic instability. We use the conceptual framework from Kehoe, Nicolini and Sargent (2013), which comprises a budget-constraint accounting exercise and models of balance-of-payment crisis and public-debt crisis. Chronic inflation in the 1960s was associated with sustained fiscal deficits. Since the 1990s, the opening of the economy, the pricestabilization plans and the more restrictive institutional framework of the Central Bank resulted in less inflationary financing of fiscal deficits. Although inflation significantly declined in 1960-2014, the inflation tax remained an important source to finance obligations. Public-debt dollarization increased the vulnerability of the public sector but primary fiscal surpluses and public-debt de-dollarization after the 2002 crisis reduced such vulnerability. We conclude that, in the last three decades, governments have slowly understood the importance of fiscal constraints to guarantee nominal stability

Gabriel Oddone
FERRERE / Centro de Investigaciones Económicas (CINVE), Montevideo