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Fiscal Retrenchment and Sovereign Risk

Author

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  • Felix Strobel

    (Humboldt-Universitaet zu Berlin)

Abstract

How does sovereign risk affect the dynamic consequences of identified contractionary fiscal policy shocks? I apply a regime-switching SVAR on Italian data and find that in periods in which government bond yield spreads are high and volatile, fiscal multipliers are smaller than in the calm regime. This empirical finding supports theoretical arguments that associate fiscal distress with low fiscal multipliers. Creation Date: 2015-06-05

Suggested Citation

  • Felix Strobel, "undated". "Fiscal Retrenchment and Sovereign Risk," BDPEMS Working Papers 2015007, Berlin School of Economics.
    • Handle: RePEc:bdp:wpaper:2015007
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    More about this item

    Keywords

    Sovereign Risk; Fiscal Policy; Fiscal Multipliers;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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