Advanced Search
MyIDEAS: Login to save this paper or follow this series

Expected fiscal policy and interest rates in open economy

Contents:

Author Info

Abstract

This paper reconsiders the long term effect of fiscal policy on interest rates using a real-time dataset of macroeconomic and fiscal variables in a panel of 17 OECD countries over the period 1989-2009. We show that, after controlling for cross sectional dependence using a Factor Augmented Panel, interest rates are mostly related to global factors. Among domestic fiscal variables, the level of expected public debt mantains a positive correlation with interest rates, while among the global factors, the aggregate monetary and fiscal stance play a quantitatively sizeable role. We then analyze how impulses from the aggregate fiscal stance influence each country's interest rates. We find that these effects are modest in large economies and particularly strong in economies characterized by low initial financial integration, leading the way to a novel interpretation of the divergent behaviour of interest rates in the recent financial crisis.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP07-2011.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 07-2011.

as in new window
Length: 70 pages
Date of creation: 03 Mar 2011
Date of revision:
Handle: RePEc:gii:giihei:heidwp07-2011

Contact details of provider:
Postal: P.O. Box 36, 1211 Geneva 21
Phone: ++41 22 731 17 30
Fax: ++41 22 738 43 06
Email:
Web page: http://www.graduateinstitute.ch/economics
More information through EDIRC

Related research

Keywords: Real time data; Fiscal Policy; Interest rates; Cross sectional dependence; Heterogeneous panels; Factor model.;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ardagna, Silvia & Caselli, Francesco & Lane, Timothy, 2004. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," CEPR Discussion Papers 4661, C.E.P.R. Discussion Papers.
  2. Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2004. "Sovereign risk premia in the European government bond market," Working Paper Series 0369, European Central Bank.
  3. S M Ali Abbas & Jacques Bouhga-Hagbe & Antonio Fat�s & Paolo Mauro & Ricardo C Velloso, 2011. "Fiscal Policy and the Current Account," IMF Economic Review, Palgrave Macmillan, vol. 59(4), pages 603-629, November.
  4. Bertola, Giuseppe & Drazen, Allan, 1991. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," CEPR Discussion Papers 599, C.E.P.R. Discussion Papers.
  5. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
  6. Riccardo Faini, 2006. "Fiscal policy and interest rates in Europe," Economic Policy, CEPR & CES & MSH, vol. 21(47), pages 443-489, 07.
  7. repec:fth:coluec:754 is not listed on IDEAS
  8. Balduzzi, Pierluigi & Corsetti, Giancarlo & Foresi, Silverio, 1997. "Yield-curve movements and fiscal retrenchments," European Economic Review, Elsevier, vol. 41(9), pages 1675-1685, December.
  9. Douglas W. Elmendorf & N. Gregory Mankiw, 1998. "Government debt," Finance and Economics Discussion Series 1998-09, Board of Governors of the Federal Reserve System (U.S.).
    • Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669 Elsevier.
  10. Robert Ford & Douglas Laxton, 1995. "World Public Debt and Real Interest Rates," IMF Working Papers 95/30, International Monetary Fund.
  11. Robert J. Barro & Xavier Sala-i-Martin, 1990. "World Real Interest Rates," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 15-74 National Bureau of Economic Research, Inc.
  12. Ardagna, Silvia, 2009. "Financial markets' behavior around episodes of large changes in the fiscal stance," European Economic Review, Elsevier, vol. 53(1), pages 37-55, January.
  13. Antonio Afonso, 2010. "Long-term government bond yields and economic forecasts: evidence for the EU," Applied Economics Letters, Taylor & Francis Journals, vol. 17(15), pages 1437-1441.
  14. Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc.
  15. Roel Beetsma & Massimo Giuliodori, 2010. "Fiscal adjustment to cyclical developments in the OECD: an empirical analysis based on real-time data," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 419-441, July.
  16. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
  17. Dornbusch, Rudi, 1997. "Fiscal Aspects of Monetary Integration," American Economic Review, American Economic Association, vol. 87(2), pages 221-23, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jaramillo, Laura & Weber, Anke, 2013. "Bond yields in emerging economies: It matters what state you are in," Emerging Markets Review, Elsevier, vol. 17(C), pages 169-185.
  2. Laura Jaramillo & Anke Weber, 2012. "Bond Yields in Emerging Economies," IMF Working Papers 12/198, International Monetary Fund.
  3. Salvatore Dell'Erba & Emanuele Baldacci & Tigran Poghosyan, 2011. "Spatial Spillovers in Emerging Market Spreads," IMF Working Papers 11/221, International Monetary Fund.
  4. Alessandro Missale, 2012. "Sovereign debt management and fiscal vulnerabilities," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 157-176 Bank for International Settlements.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:gii:giihei:heidwp07-2011. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johannes Eugster).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.