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What are the effects of fiscal policy on asset markets?

  • Afonso, António
  • Sousa, Ricardo M.

We investigate the link between fiscal policy shocks and asset markets. Our results show that spending shocks have: a positive and persistent effect on GDP in the U.S. and in the U.K., while for Germany and Italy, such impact is temporary; a positive and persistent effect on housing prices; a negative effect on stock prices; and mixed effects on the price level. A VAR counter-factual exercise suggests that fiscal shocks play a minor role in the asset markets of the U.S. and Germany, and substantially increase the variability of housing and stock prices in the U.K., while government revenue shocks have increased volatility in Italy.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 4 (July)
Pages: 1871-1890

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1871-1890
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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