Do financial markets reward government spending efficiency?

Government Spending Multiplier in a Model with Financial Friction

During the recent financial crisis, huge fiscal stimulus packages were initiated and bold actions were taken by monetary authorities in many countries. Inspired by these, I explore the impact of fiscal stimulus when I take financial friction and liquidity trap into account. In particular, I investigate the fiscal multiplier in a dynamic stochastic general equilibrium model which is featured wit...

Imperfect Financial Markets and the Cyclicality of Social Spending

I develop a novel link between frictions in international financial markets and fiscal procyclicality. Complementing existing evidence, A decomposition of government expenditure into social spending and public good spending reveals that the cyclical correlation of social spending exhibits the biggest differences across countries. I build a small open economy model with income inequality, endoge...

Financial Markets as a Commitment Device for the Government

How does the presence of financial markets shape the government’s ability to implement social redistribution? Individuals typically do not constrain consumption to equal their net-of-tax income every period. Instead, access to financial markets allows them to allocate their resources over time. On the other hand, the markets that individual agents trade in are usually incomplete in the sense th...

Government Spending and Growth

The efficiency of financial futures markets: Tests of prediction accuracy

The prices of financial futures contracts can be interpreted as forecasts of the spot rates, which will apply at the final delivery date of that contract. Financial futures contracts have been traded daily since the early 1980s and provide a substantial bank of data to test the forecasting efficiency of such contracts. Tests are carried out to examine whether the interest rates implied by the f...