Arbeitspapier

Expected fiscal policy and interest rates in open economy

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This paper reconsiders the long term effect of fiscal policy on interest rates using a real-time dataset of macroeconomic and fiscal variables in a panel of 17 OECD countries over the period 1989-2009. We show that, after controlling for cross sectional dependence using a Factor Augmented Panel, interest rates are mostly related to global factors. Among domestic fiscal variables, the level of expected public debt mantains a positive correlation with interest rates, while among the global factors, the aggregate monetary and fiscal stance play a quantitatively sizeable role. We then analyze how impulses from the aggregate fiscal stance influence each country's interest rates. We find that these effects are modest in large economies and particularly strong in economies characterized by low initial financial integration, leading the way to a novel interpretation of the divergent behaviour of interest rates in the recent financial crisis.

Sprache
Englisch

Erschienen in
Series: Graduate Institute of International and Development Studies Working Paper ; No. 07/2011

Klassifikation
Wirtschaft
Econometric and Statistical Methods and Methodology: General
Interest Rates: Determination, Term Structure, and Effects
International Policy Coordination and Transmission
Economic Impacts of Globalization: Macroeconomic Impacts
Forecasts of Budgets, Deficits, and Debt
Thema
Real time data
Fiscal Policy
Interest rates
Cross sectional dependence
Heterogeneous panels
Factor model
Finanzpolitik
Zins
Panel
Schätzung
OECD-Staaten

Ereignis
Geistige Schöpfung
(wer)
Dell'Erba, Salvatore
Sola, Sergio
Ereignis
Veröffentlichung
(wer)
Graduate Institute of International and Development Studies
(wo)
Geneva
(wann)
2011

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Dell'Erba, Salvatore
  • Sola, Sergio
  • Graduate Institute of International and Development Studies

Entstanden

  • 2011

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