Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/234684 
Year of Publication: 
2020
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-01098
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
Abstract: 
Fiscal policy and net capital inflows in developing countries are procyclical. A large amount of literature has examined this phenomenon and explored its consequences for aggregate fluctuations. Multilateral development banks (MDBs) are an important source of external finance for governments and hence play a key role in financing the execution of fiscal policy. Hence, understanding the behavior of MDB flows is key to gauge their contribution to macroeconomic volatility. This paper investigates the co-movement of sovereign lending from MDBs and private creditors with government expenditure, and finds that multilateral sovereign lending follows government expenditure, and that this correlation does not change if the government is running a surplus or a deficit. This finding raises doubts on the feasibility of MDBs to be counter-cyclical, unless the governments themselves implement counter-cyclical fiscal policies.
Subjects: 
International government debt
capital flows
counter-cyclicality
multilateral development banks
JEL: 
F21
F34
F42
F44
F53
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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