Financial Markets’ Behavior Around Episodes of Large Changes in the Fiscal Stance

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Financial Markets’ Behavior Around Episodes of Large Changes in the Fiscal Stance

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Title: Financial Markets’ Behavior Around Episodes of Large Changes in the Fiscal Stance
Author: Ardagna, Silvia
Citation: Ardagna, Silvia. 2009. Financial markets' behavior around episodes of large changes in the fiscal stance. European Economic Review 53(1): 37-55.
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Abstract: Using a panel of OECD countries from 1960 to 2002, this paper shows that interest rates, particularly those of long-term government bonds, decrease when countries’ fiscal position improves and increase around periods of budget deteriorations. Stock market prices surge around times of substantial fiscal tightening and plunge in periods of very loose fiscal policy. In addition, the paper shows that results depend on countries’ initial fiscal conditions and on the type of fiscal consolidations: Fiscal adjustments that occur in country-years with high levels of government deficit, that are implemented by cutting government spending, and that generate a permanent and substantial decrease in government debt are associated with larger reductions in interest rates and increases in stock market prices.
Published Version: http://dx.doi.org/10.1016/j.euroecorev.2008.07.003
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:2579824
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