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Using Financial Market Information To Enhance Canadian Fiscal Policy

Author

Listed:
  • Huw Lloyd-Ellis

    (Queen's University)

  • Xiaodong Zhu

    (University of Toronto)

Abstract

In this article we argue that the evaluation and implementation of Canadian fiscal policy could be significantly improved through the systematic use of information provided by global financial markets. In particular, we show how the information contained in internationally traded asset returns can be used to (1) provide a more meaningful cyclical-adjustment of the budget deficit, (2) assess the sustainability of the public debt, and (3) reduce the risk of the debt becoming unsustainable without having to run excessively large surpluses.

Suggested Citation

  • Huw Lloyd-Ellis & Xiaodong Zhu, 2004. "Using Financial Market Information To Enhance Canadian Fiscal Policy," Working Paper 1041, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1041
    as

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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1041.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Public debt; cyclically-adjusted deficit; sustainability; hedging;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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