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Sovereign Uncertainty

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  • Edgar Silgado‐Gómez

Abstract

This article investigates the impact and transmission of uncertainty regarding the future path of government finances on economic activity. Employing a data‐rich approach, I introduce a novel proxy that captures uncertainty surrounding public finances, which I refer to as sovereign uncertainty. In an application to Spain, sovereign uncertainty shocks persistently dampen the economy in the medium run, whereas macro‐financial uncertainty shocks originating in the private sector induce a negative short‐lived response in real activity. In addition, a New Keynesian model rationalizes the empirical results, emphasizing the role of financial frictions and monetary policy decisions in transmitting the effects of sovereign uncertainty shocks.

Suggested Citation

  • Edgar Silgado‐Gómez, 2024. "Sovereign Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(4), pages 1985-2018, November.
    • Handle: RePEc:wly:iecrev:v:65:y:2024:i:4:p:1985-2018
    DOI: 10.1111/iere.12718
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    References listed on IDEAS

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    1. Ricco, Giovanni & Callegari, Giovanni & Cimadomo, Jacopo, 2016. "Signals from the government: Policy disagreement and the transmission of fiscal shocks," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 107-118.
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