IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v154y2026ics0264999325003591.html
   My bibliography  Save this article

Spillovers of U.S. fiscal challenges: The global impact of U.S. fiscal dominance concerns on interest rates in emerging and developed markets

Author

Listed:
  • Aizenman, Joshua
  • Eldén, William
  • Jinjarak, Yothin
  • Uddin, Gazi Salah
  • Widholm, Frida

Abstract

This study examines the international spillovers of U.S. inflationary spells and fiscal concerns on policy interest rates in Emerging Market Economies (EMEs) and Developed Economies (DEs). Previous research has focused on fiscal concerns in domestic environments, overlooking cross-border impacts. Using data from EMEs and DEs, we construct a novel index of fiscal dominance concerns through Principal Components Analysis to capture international fiscal dynamics. The results are confirmed by robustness analysis and show that greater U.S. fiscal challenges affect negatively the policy rates in both EMEs and DEs, with a greater impact observed in EMEs. Moreover, a low degree of financial repression in EMEs is associated with more significant spillover effects from greater U.S. fiscal challenges. Our findings offer insights into the complex interplay between financial repression, central bank independence, and global market integration in shaping a country's resilience to international financial influences.

Suggested Citation

  • Aizenman, Joshua & Eldén, William & Jinjarak, Yothin & Uddin, Gazi Salah & Widholm, Frida, 2026. "Spillovers of U.S. fiscal challenges: The global impact of U.S. fiscal dominance concerns on interest rates in emerging and developed markets," Economic Modelling, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:ecmode:v:154:y:2026:i:c:s0264999325003591
    DOI: 10.1016/j.econmod.2025.107364
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999325003591
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2025.107364?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:154:y:2026:i:c:s0264999325003591. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.