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The effect of asset price volatility on fiscal policy outcomes

Author

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  • Athanasios Tagkalakis

    (Bank of Greece)

Abstract

This paper examines the effect of asset price volatility on fiscal policy stance. We find that asset price volatility affects the volatility of discretionary fiscal policy in a positive and significant manner, which according to Fatas and Mihov (2003) has negative repercussions on output volatility and economic growth. Higher residential property price volatility amplifies both the volatility of government spending and the volatility of the discretionary fiscal policy stance. Equity price volatility increases the volatility of the fiscal policy stance, primarily via the government revenue channel.

Suggested Citation

  • Athanasios Tagkalakis, 2009. "The effect of asset price volatility on fiscal policy outcomes," Working Papers 106, Bank of Greece.
    • Handle: RePEc:bog:wpaper:106
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    References listed on IDEAS

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    1. Antonio Fatás & Ilian Mihov, 2003. "The Case for Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1419-1447.
    2. Albert Jaeger & Ludger Schuknecht, 2007. "Boom-Bust Phases in Asset Prices and Fiscal Policy Behavior," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(6), pages 45-66, November.
    3. Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
    4. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
    5. Jordi Galí & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe [‘Consumption smoothing through fiscal policy in OECD and EU countries’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 533-572.
    6. Athanasios Tagkalakis, 2009. "Fiscal adjustments and asset price movements," Working Papers 104, Bank of Greece.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Rangan Gupta & Charl Jooste & Kanyane Matlou, 2014. "A time-varying approach to analysing fiscal policy and asset prices in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 6(1), pages 46-63, April.
    2. Vasilis Droucopoulos & Panagiotis Chronis, 2010. "“Assessing market dominance”: a comment and an extension," Working Papers 109, Bank of Greece.
    3. Alexander Zimper, 2014. "The minimal confidence levels of Basel capital regulation," Journal of Banking Regulation, Palgrave Macmillan, vol. 15(2), pages 129-143, April.

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    More about this item

    Keywords

    Asset prices; fiscal policy; volatility;
    All these keywords.

    JEL classification:

    • 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
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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