Carlos A. Vegh, Ph.D.

Fred H. Sanderson Professor of International Economics
International Economics

Background and Education

Carlos A. Vegh is the Fred H. Sanderson Professor of International Economics at Johns Hopkins University,  where he is jointly appointed in the School of Advanced International Studies (SAIS) in Washington, DC and the Department of Economics in the Zanvyl Krieger School of Arts and Sciences (KSAS) in Baltimore.  He is also a Research Associate at the National Bureau of Economic Research and a Non-Resident Senior Fellow at the Brookings Institution. He received his Ph.D. in Economics from the University of Chicago in 1987. He spent the early years of his career at the IMF’s Research Department. From 1995 to 2013, he was a tenured Professor first at UCLA and then at the University of Maryland.  At UCLA, he was also the Vice-Chair for Undergraduate Studies.  He has been co-editor of the Journal of International Economics and the Journal of Development Economics, the leading journals in their respective fields.  He has published extensively in leading academic journals on monetary and fiscal policy in developing and emerging countries. He has co-edited a volume in honor of Guillermo Calvo (MIT Press) and  published a graduate textbook on open economy macroeconomics for developing countries (MIT Press).  He has been a consultant for the IMF, World Bank, IDB, and many Central Banks around the world.

  1. 2014

    Reserve requirement policy over the business cycle

    (with Pablo Federico and Guillermo Vuletin)

    Based on a novel quarterly dataset for 52 countries for the period 1970-2011, we analyze the use and cyclical properties of reserve requirements (RR) as a macroeconomic stabilization tool and whether RR policy substitutes or complements monetary policy. We find that (i) around two thirds of developing countries have used RR policy as a macroeconomic stabilization tool compared to just one third of industrial countries (and no industrial country since 2004); (ii) most developing countries that rely on RR use them countercyclically; and (iii) in many developing countries, monetary policy is procyclical and hence RR policy has substituted monetary policy as a countercyclical tool. We interpret the latter finding as reflecting the need of many emerging markets to raise interest rates in bad times to defend the currency and not raise or lower the interest rate in good times to prevent further currency appreciation. Under these circumstances, RR policy provides a second instrument that substitutes for monetary policy. Evidence from expanded Taylor rules (i.e., Taylor rules that include a nominal exchange rate target) supports these mechanisms.

  2. 2014

    Procyclical and countercyclical fiscal multipliers:  Evidence from OECD ountries

    (with Daniel Riera-Crichton and Guillermo Vuletin)

    Using non-linear methods, we argue that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing. In the case of OECD countries, the problem originates in the fact that, contrary to one's priors, it is not always the case that government spending is going up in recessions (i.e., acting countercyclically). In almost as many cases, government spending is actually going down (i.e., acting procyclically). Since the economy does not respond symmetrically to government spending increases or decreases, the "true" long-run multiplier for bad times (and government spending going up) turns out to be 2.3 compared to 1.3 if we just distinguish between recession and expansion. In extreme recessions, the long-run multiplier reaches 3.1.

  3. 2014

    Social implications of fiscal policy responses during crises

    (with Guillermo Vuletin)

    This paper studies the social implications of fiscal policy responses to crises in Latin America over the last 40 years and in the Eurozone during the aftermath of the global financial crisis. We focus on the behavior of four social indicators: the poverty rate, income inequality, unemployment rate, and domestic conflict. We find a causal link from counteryclical (procyclical) fiscal policy responses to reductions (increases) in all four social indicators. These results call into question recent claims on "expansionary fiscal austerity."

  4. 2014

    The Road to redemption:  Policy response to crises in Latin America

    (with Guillermo Vuletin); forthcoming IMF Economic Review

    This paper analyzes the fiscal and monetary policy responses to crises in Latin America over the last 40 years. We argue that, on average, Latin American countries have "graduated" in terms of their policy responses in the sense that they have been able to switch from procyclical to counteryclical policy responses. This average response, however, masks a great deal of heterogeneity with some countries (such as Chile, Brazil, and Mexico) leading the graduation process and others (like Argentina and Venezuela) still showing procyclical policy responses. We further show that countercyclical policy responses have been effective in reducing the duration and intensity of crises. Finally, we relate our analysis to the current crisis in the Eurozone and argue that, like in many instances in Latin America, procyclical fiscal policy has increased the duration and intensity of the crisis.

  5. 2012

    Tax multipliers:  Pitfalls in measurement and identification

    (with G. Vuletin and D. Riera-Crichton, forthcoming JME.

    We contribute to the literature on tax multipliers by analyzing the pitfalls in identification and measurement of tax shocks. Our main focus is on disentangling the discussion regarding the identification of exogenous tax policy shocks (i.e., changes in tax policy that are not the result of policymakers responding to output fluctuations) from the discussion related to the measurement of tax policy (i.e., finding a tax policy variable under the direct control of the policymaker). For this purpose, we build a novel value-added tax rate dataset and the corresponding cyclically-adjusted revenue measure at a quarterly frequency for 14 industrial countries for the period 1980-2009. We also provide complementary evidence using Romer and Romer (2010) and Barro and Redlick (2011) data for the United States. On the identification front, our findings favor the use of narratives à la Romer and Romer (2010) to identify exogenous fiscal shocks as opposed to the identification via SVAR. On the (much less explored) measurement front, our results strongly support the use of tax rates as a true measure of the tax policy instrument as opposed to widely-used, revenue-based measures, such as cyclically-adjusted revenues.

  6. 2012

    How is tax policy conducted over the business cycle? 

    (with Guillermo Vuletin); forthcoming AEJ: Economic Policy

    It is well known by now that government spending has typically been procyclical in developing economies but acyclical or countercyclical in industrial countries. Little, if any, is known, however, about the cyclical behavior of tax rates (as opposed to tax revenues, which are endogenous to the business cycle and hence cannot shed light on the cyclicality of tax policy). We build a novel dataset on tax rates for 62 countries for the period 1960-2013 that comprises corporate income, personal income, and value-added tax rates. We find that, by and large, tax policy is acyclical in industrial countries but mostly procyclical in developing countries. Further, tax policy in countries with better institutions and/or more integrated with world capital markets tends to be less procyclical/more countercyclical.

  7. POLICY ARTICLES 

  8. Fiscal policy response to crises:  The socia impact