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This thesis deals with one obsession: the role of external factors in generating boombust cycles in Latin American countries. In the first chapter, I employ a Markov switching model to statistically validate the claim that the region is currently experiencing a combination of unprecedented favourable external conditions: high commodity prices and low global real interest rates. Based on this evidence, I introduce a model of a resource-rich small open economy with financial frictions in which external conditions switch stochastically between two regimes: “windfall” and “shortfall”. The model is calibrated to Argentina to study how changes in external conditions give rise to boom-bust cycles. I contribute to the current debate on the desirability of controls on capital inflows by studying, from a positive perspective, the effects of introducing a regime contingent tax rate on debt holdings. I conclude that the welfare effect, albeit always very small, is determined by the strength of the domestic financial frictions. The third chapter attempts to empirically evaluate the model by performing an event study. I assess the ability of the model to reproduce the behaviour of the economy during a five-year window period centered around the Great Recession of 2008/09. To capture the external environment following Lehman Brothers’ collapse, I introduce a regime switch in global financial conditions: normal and panic periods. I conclude that the model captures remarkably well the dynamic in this period and that its main weakness is the inability to reproduce the large swings observed in asset prices. The second chapter presents and studies a novel mechanism through which low-frequency fluctuations in foreign interest rates can generate different boom-bust patterns in an internationally borrowing constrained small open economy: intertemporal spillovers via collateral markets. When interest rates are low, the presence of a binding international borrowing constraint creates an intertemporal wedge that spills over into the intertemporal equation for capital due to its dual role as physical capital and financial collateral. As a result, in economies where the main source of collateral is reproducible capital, the spillover effect resembles an investment subsidy and fluctuations are smooth since there are no valuation effects. In contrast, when non-reproducible capital is posted as collateral, the disturbance resembles a financial service dividend and the interest rate fluctuations cause ample swings in macro aggregates due to their strong impact on asset valuations. It is my belief that in these chapters, I have contributed to our understanding of medium-run macroeconomic fluctuations in “semi-peripheral” countries.

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This dissertation compares the effects of progressive social reform on income inequality in the Southern Cone of South America, Scandinavia, and Australasia. These regions faced comparable economic challenges at the start of the 20th century, but experienced different trends of income inequality after they introduced progressive policies in this period. Australasia and Scandinavia converged on a downward trend while the Southern Cone remained comparatively more unequal. The dissertation concentrates on three areas that significantly predict inequality in contemporary research: labour markets, education, and taxation and spending policies. Existing explanations usually focus on supply-side aspects of policy reform: wage regulation, and increased taxation and spending on education and social insurance, are thought to bring inequality down in the long-run. These reforms are seen as the outcome of the relative power of working class groups over elites. Despite institutional variation, the three regions enacted progressive policies to address distributional conflict and protect their economies from global risks. I study the demand-side of policy reform; policies faced considerable collective action problems to promote compliance and cooperation in order to work in the long-time and include populations at large. The fact that most people were motivated to comply meant that labour markets generated formality and standard wages, education increased human capital, and spending became stable as the tax base increased in Scandinavia and the Antipodes. The opposite happened in the Southern Cone as social actors tried to link selectively with the state while state officials neglected the material constraints that limited access to welfare and education. Each chapter spells out the conditions through which policy addressed collective action problems to motivate cooperation with wage agreements, sending children to school, and compliance with taxation and spending policies. Behind comparable aggregate numbers in these areas, the underlying social processes differed as Australasians and Scandinavians fostered cooperation between state and social actors, while the Southern Cone did not.