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Fiscal and Monetary Nexus in Emerging Market Economies

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  • Garima Vasishtha
  • Taimur Baig
  • Manmohan S. Kumar
  • Edda Zoli

Abstract

This paper examines two main aspects of the interaction between fiscal and monetary policy in emerging market economies. First, it explores the interest rate-inflation relationship in economies with different levels of external and domestic public debt using panel- and crosssection data. The results show that interest rate-inflation elasticity weakens with debt/GDP and external debt/GDP. Second, it utilizes high-frequency data from Brazil, Turkey, and Poland to examine how market-determined variables react to economic news. The results suggest that when vulnerabilities are high, budget news has the most significant impact on country spreads and interest rates, and the impact of monetary policy is weakened.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/184.

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Length: 43
Date of creation: 01 Aug 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/184

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Keywords: Public debt; Emerging markets; fiscal policy; monetary policy; central bank; inflation; monetary fund; fiscal policy actions; budget deficit; tax reform; budget constraint; monetary authorities; budget balance; monetary economics; fiscal authorities; budget deficits; fiscal theory; government budget; government budget constraint; fiscal variables; spending cuts; tax reforms; bad ? fiscal policy; aggregate demand; expansionary fiscal policy; budget surplus; state budget; expansionary fiscal; long-term interest rates; fiscal sustainability; national bank; monetary policy implications; fiscal affairs; bad fiscal policy; fiscal affairs department; monetary authority; eurobonds; monetary union; budgetary position; fiscal deficits; monetary dynamics; monetary economies; monetary policies; tax cut; government securities yields; fiscal balances; foreign borrowing; budget law; fiscal discipline; fiscal effort; fiscal vulnerability; fiscal stance; fiscal austerity; fiscal decisions; fiscal authority; fiscal expansions; fiscal policy action; fiscal solvency; fiscal situation; fiscal issues; fiscal theories; government budgets; tight monetary policy; secondary market government securities; loose fiscal policy; public finances; primary budget surplus; government securities; restrictive monetary policy; fiscal events; foreign debt; inflation-targeting; fiscal space; reserve requirements; monetary policy rules; monetary policy instruments; fiscal performance; public finance; government spending;

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References

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Cited by:
  1. Patricia Crifo & Marc-Arthur Diaye & Rim Oueghlissi, 2014. "Measuring the eff ect of government ESG performance on sovereign borrowing cost," Working Papers hal-00951304, HAL.
  2. D B�ttner & B. Hayo, 2012. "EMU-related news and financial markets in the Czech Republic, Hungary and Poland," Applied Economics, Taylor & Francis Journals, vol. 44(31), pages 4037-4053, November.
  3. Stehn, Sven Jari & Vines, David, 2008. "Debt Stabilisation Bias and the Taylor Principle: Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence," CEPR Discussion Papers 6696, C.E.P.R. Discussion Papers.
  4. Moser, Christoph, 2007. "The Impact of Political Risk on Sovereign Bond Spreads - Evidence from Latin America," Proceedings of the German Development Economics Conference, Göttingen 2007 24, Verein für Socialpolitik, Research Committee Development Economics.
  5. Stehn, Sven Jari & Vines, David, 2008. "Strategic Interactions between an Independent Central Bank and a Myopic Government with Government Debt," CEPR Discussion Papers 6913, C.E.P.R. Discussion Papers.
  6. Svan Jari Stehn & David Vines, 2007. "Debt Stabilisation Bias And The Taylor Principle: Optimal Policy In A New Keynesian Model With Government Debt And Inflation Persistence," CAMA Working Papers 2007-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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