IS TIGHTER FISCAL POLICY EXPANSIONARY UNDER FISCAL DOMINANCE?: HYPERCROWDING OUT IN LATIN AMERICA

Hypercrowding out occurs when fiscally dominated governments' domestic credit demands are so intrusive to a nation's financial system that a move toward fiscal surplus lowers interest rates and increases growth. We sample nine Latin American countries to test for these relationships. The impulse-response results of vector error correction models, six nations test positive for these two connections, suggesting market concern despite recent efforts toward fiscal balance. (JEL E430, E620, O230, O540).