Fiscal Policy and Financial Markets*
نویسنده
چکیده
We examine the effect of fiscal policy on sovereign risk spreads and investigate whether the interaction of fiscal variables with political institutions affect financial markets. Using panel data from emerging market countries, we find that revenue-based adjustment lowers spreads more than spending-based adjustment. Financial markets also react to the composition of spending. Cuts in current spending lower spreads more than cuts in investment. We show that debt-financed spending increases sovereign risk, while tax-financed spending lowers spreads, suggesting that international investors prefer the latter. Further, we find evidence that financial markets reaction to fiscal policy depends on political institutions.
منابع مشابه
Digitized by the Internet Archive in 2011 with Funding from Fiscal Policy and Financial Depth Dec 7 20(m Libraries Fiscal Policy and Financial Depth
Most economists and observers place the lack of fiscal discipline at the core of the recent Argentine crisis. This begs the question of how countries like Belgium or Italy (pre-Maastricht) could run large fiscal deficits and accumulate debts far beyond those of Argentina, without experiencing crises nearly as dramatic as that of Argentina? Why is it that Argentina cannot act like Belgium or Ita...
متن کاملA New Policy Environment to Achieve Monetary Goals
Monetary environment as the core of financial system has been functionally designed in light of the new set of extensive goals including financial stability, sustainable noninflationary growth, external sustainability, and price stability. A comprehensive monetary policy framework is proposed for Iran which systematically include the new goals, stance variables, instruments, transmission mechan...
متن کاملFiscal, Monetary, and Financial Interactions in Dynamic General Equilibrium
This paper proposes a model that links households and firms, as usual, by markets for factors and goods and, additionally, by a banking sector that channels households’ funds to firms and eliminates idiosyncratic risk. In equilibrium, agency costs and tax benefits of corporate debt are equalizing each other, which renders an institutionally based explanation of financial structure. Adjustment o...
متن کاملFiscal policy and interest rates : the role of financial and economic integration
It is commonly believed that a fiscal expansion raises interest rates. However, these crowding out effects of deficits have been found to be small or non-existent. One explanation is that financial integration offsets interest rate differentials on globalised bond markets. This paper measures the degree of integration of government bond markets, using spatial modelling techniques to take this s...
متن کامل