This paper analyzes the effects of business cycles on fiscal policy in Venezuela during 1991–2003. On the characteristics of the business cycle, we observed a strong dominance of short-term cyclical components with the volatility of the non-oil economy being twice as high as the volatility of the oil economy. While oil revenues are acyclical, all the other main fiscal variables exhibit strong procyclicality. Fiscal policy was more procyclical during ‘good’ times than during ‘bad’ times.

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A fiscal insurance mechanism for the member countries of the Organization of Eastern Caribbean States (OECS) would be important for cushioning against transitory shocks and also reinforce the monetary union’s long-term viability. Numerical simulations for partial and full insurance schemes quantifies the required size of the initial buffer fund and the potential welfare gains in terms of lower initial buffer funds relative to self-insurance.

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We investigate whether the higher output and consumption volatility in less developed economies can be explained by differences across countries in the substitutability between home and market produced goods. Using a neoclassical model with a home sector we show that a positive relationship between output volatility and the substitutability of home and market goods exists. Finally, we demonstrate, using micro data, that at least for the case of Mexico, such relationship holds true.

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In this paper we study consumption responses to income fluctuations and shocks at the household level using new panel datasets from Nicaragua and Colombia. We estimate the net effect of the interaction between economic risk and protection. We test for differences in responses across different “groups” due to differences in access to mechanism of consumption smoothing or differences in liquidity constraints. We investigate the responses of consumption to several potential shocks.

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The dynamic response of aggregate variables to shocks is one of the central concerns of applied macroeconomics. The main measurement procedure for these dynamics consists of estimating a VAR. This paper shows that when the microeconomic adjustment underlying the corresponding aggregates is lumpy, VAR procedures are often inadequate for the purposes they are used in non-structural, semi-structural and structural settings.

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