search query: @indexterm Monetary Policy / total: 1108
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| Author: | Akitoby, B. Stratmann, T. |
| Title: | Fiscal policy and financial markets |
| Journal: | Economic Journal
2008 : NOV, VOL. 118:533, p. 1971-1985 |
| Index terms: | financial markets fiscal policy monetary policy foreign investment securities transition economies risk models |
| Language: | eng |
| Abstract: | This paper deals with the effect of fiscal policy on sovereign risk spreads and examines whether the interaction of fiscal variables with political institutions affect financial markets (hereafter as: fin-mkts.) Based on panel data from emerging market countries, revenue-based adjustment (here as: adj.) is found to lower spreads more than spending-based adj. Fin-mkts. also react to the composition of spending. It is shown that debt-financed spending (as: spng.) increases sovereign risk, while tax-financed spng. lowers spreads, suggesting that international investors prefer the latter. Moreover, there is found evidence that fin-mkts.' reaction to fiscal policy depends on political institutions. |
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