## _wp06184 — 1. Interest Elasticity and Public Debt

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### I. Introduction — macroeconomic costs and fiscal dominance
- Macroeconomic consequences of increased public indebtedness highlighted:
  - Concerns about fiscal sustainability and possible financial crisis → adverse cycle of higher borrowing costs and worsening fiscal balances.
  - Rising debt and debt payments squeeze fiscal space for other expenditures.
  - High public debt can impede economic growth via crowding out private sector borrowing.
- Fiscal constraints on monetary policy and “fiscal dominance”:
  - Compatibility of monetary policy stance with fiscal stance is central; monetary authorities may need to compensate for overly expansionary fiscal policy.
  - Central bank independence does not eliminate fiscal constraints; fiscal policy actions shape the environment in which monetary policy operates and can strongly influence it.
  - Fiscal constraints occur in weak and robust activity environments: large deficits constrain ability to be accommodative in weak environments; expansionary fiscal policy increases need for tight monetary policy in robust environments.
- Illustrative mechanism (closed economy with large domestic government debt):
  - Increase in inflation or inflationary expectations warrants monetary tightening.
  - Higher policy rates raise long-term rates via the term structure, increasing debt-servicing costs; the larger the debt, ceteris paribus, the greater the impact.
  - Fiscal authorities may urge less tightening; fiscal constraints may limit monetary tightening even when warranted.

### II. Fiscal-monetary nexus: analytical and empirical studies
- Mechanisms through which fiscal policy affects monetary policy:
  - Government budget constraint, central bank financing of deficits, central bank credibility, inflation/expectations, fiscal impacts on aggregate demand, direct effects on interest rates, interest spreads and exchange rates.
- Key theoretical references and points:
  - Fiscal theory of the price level (Woodford, 1994): fiscal policy can determine the price level when the government’s inter-temporal budget constraint pins down the price level.
  - Fiscal dominance (Sargent and Wallace, 1981): if real interest rate > growth rate, monetary policy aimed at reducing inflation can increase debt/GDP and ultimately require more money growth, raising future inflation.
- Empirical literature summary:
  - Industrial-country studies mostly find monetary policy has not accommodated fiscal policy; sometimes monetary policy tightens in response to loose fiscal policy (Melitz 1997, 2002; Wyplosz 1999).
  - Emerging-market evidence scarcer and mixed; Zoli (2005) finds fiscal dominance in Argentina and Brazil for parts of 1990s–2000s.

### III. Cross-Country Analysis — methodology and data
- Two-stage empirical approach:
  - Stage 1 (country-by-country): estimate r_it = α_i + β_i π_{t-1,i} + ε_it
    - r_it: overnight interest rate for country i.
    - π_{t-1,i}: rate of inflation over the past twelve months (lagged one period).
    - Variant (1)’ adds γ_i (π_{t-1,i} - π_{t-2,i}).
  - Stage 2 (cross-section): explain cross-country variation in β̂_i via β̂_i = λ + α Z_i + v_i
    - Z_i includes: total public debt (share of GDP), external debt (share of GDP), external debt as share of total debt, financial liberalization index, index of central bank independence.
    - Estimation via weighted least squares (weights = standard errors of β̂_i).
  - Robustness: panel regressions estimating r_it = α + β_1 π_{t-1,i} + β_2 debt_{it} + β_3 (π_{t-1,i} * debt_{it}) + ...
- Data:
  - Sample: twenty-five emerging market economies.
  - Quarterly data: 1992Q1 to 2005Q2 (shorter for some countries).
  - Stage 1: overnight rates from Bloomberg, Datastream, IFS; inflation = annual % change in CPI from IFS.
  - Stage 2 explanatory variables: Debt-to-GDP and external debt-to-GDP from IMF internal public debt dataset; financial liberalization index (updated Abiad and Mody (2003), 7 dimensions, 4-point scale 0–3); central bank independence proxied by Governor’s turnover rate index (Dreher, Sturm, de Haan 2005).

### III. Cross-Country Analysis — key results (Table 1 summaries)
- Main stylized finding:
  - "The higher the debt ratios, the lower the response" of overnight interest rates to inflation.
  - Interpretation: high levels of public indebtedness are likely to constrain the conduct of monetary policy in emerging market economies.
- Selected reported coefficients (verbatim):
  - Debt/GDP:
    - -0.02 (6.31)*** in column (1)
    - -0.02 (5.52)*** in column (2)
    - -0.02 (1.99)* in column (3)
    - 0.03 (2.20)** in column (4)
    - 0.005 (0.39) in column (5)
    - -0.02 (3.25)*** in column (6)
    - 0.003 (0.32) in column (7)
  - External debt/GDP:
    - -0.03 (1.84)* in column (2)
    - 0.002 (0.16) in column (3)
    - -0.03 (3.00)*** in column (5)
    - -0.07 (3.65)*** in column (6)
    - -0.04 (2.54)** in column (7)
    - -0.04 (5.47)*** in column (8)
    - -0.04 (3.46)*** in column (9)
    - -0.04 (3.46)*** in column (10)
  - Financial Liberalization Index:
    - -0.14 (0.12) in column (3)
    - 0.96 (0.97) in column (4)
    - 1.69 (1.78)* in column (6)
    - -0.29 (0.23) in column (7)
  - Index of Central Bank Independence:
    - -0.67 (0.96) in column (6)
    - -0.45 (0.72) in column (7)
    - -0.18 (0.37) in column (8)
    - -0.18 (0.36) in column (9)
- Sample sizes and fit (selected):
  - No. of observations: 25 in columns (1)-(3); 18 in columns (4)-(6); 22 in columns (7)-(10).
  - Adjusted R-squared: 0.71 in (1); 0.31 in (2); 0.70 in (3); 0.54 in (4); 0.63 in (5); 0.73 in (6); 0.83 in (7); 0.69 in (8); 0.81 in (9); 0.78 in (10).
- Additional interpretations:
  - External debt ratio sometimes larger in specifications, but when both overall debt and external debt included, only overall debt is significant.
  - Financial liberalization shows positive and statistically significant coefficient in one specification; not consistent across all specifications.
  - No significant relationship found between interest-rate response to inflation and degree of central bank independence.

### IV. News Analysis — methodology
- Objective: use daily data to assess impact of fiscal and macroeconomic news on sovereign spreads, interest rates, and exchange rates (Brazil, Poland, Turkey).
- Reduced-form regression: Y_t = α + Σ β_i X_{i,t} + ε_t
  - Y_t = daily % change in country premium (EMBI Plus sub-index), or daily % change in nominal exchange rate vis-à-vis US dollar, or daily % change in domestic long-term interest rate.
  - Sample: January 1, 2002–December 31, 2004 for three-country study; Turkey also analyzed August 2001–December 2002 for crisis window; one Turkey specification uses August 2001 to December 2004 (Table 5).
- Regressors include:
  - Surprises = official data − forecasts (Bloomberg, JP Morgan) divided by standard error for domestic fiscal and macro announcements.
  - U.S. macro surprises (including Fed Funds changes).
  - Dummy variables: ACTION (concrete fiscal actions), ANNOUNCEMENT (announcements without immediate action), each split into good/bad (Action_good, Action_bad, Announcement_good, Announcement_bad).
  - Dummies for Elections, IMF, Rating_up, Rating_down, Outlook_up, Outlook_down, EU-related news (Poland and Turkey), US_EXPFEDRATEUP (Jan 28, 2004 dummy).
  - Lags of regressors included to capture delayed market responses.
- All dependent variables expressed as daily percentage changes. Interest rate regressions estimated using Newey-West standard errors; absolute t-statistics in parentheses; significance at 1, 5, or 10 percent denoted.

### IV. News Analysis — VAR diagnostics and general result
- VAR impulse-response analysis (Brazil, Poland, Turkey): shocks to EMBI spread, exchange rate, long-term interest rates generally have little impact on the other two variables and any impacts are short-lived.
- Implication: reduced-form daily regressions appropriate for news-impact analysis.

### IV. News Analysis — Brazil (2002–2004) — selected findings (Table 2 excerpts)
- EMBI spreads:
  - PRIMPSBR (primary public sector borrowing requirement) news: not significant.
  - ACTION: coefficient negative and significant at 5 percent → favorable fiscal actions reduced perceived default risk.
  - SELIC surprise: not significant contemporaneously.
  - U.S. FED surprise: negative and significant.
  - US_EXPFEDRATEUP(-1): 8.51 (2.95) on ∆EMBI.
  - IMF dummy (contemporaneous and lagged): negative and significant (IMF: -8.22 (2.80) on ∆EMBI).
  - Rating_down and Outlook_down: positive and highly significant (Rating_down: 5.81 (3.99) on ∆EMBI).
- Domestic long-term interest rate:
  - Changes move with EMBI spreads (positive, significant).
  - SELIC surprise associated with increases in domestic interest rate.
  - Outlook downgrades increase interest rates.
  - Elections dummy negative and significant.
- Exchange rate:
  - Lagged change in EMBI spread: positive and highly significant.
  - ACTION: negative and significant → good fiscal actions appreciated exchange rate.
  - SELIC unexpected change: negative and significant on exchange rate changes.
- Table 2 statistics (verbatim examples):
  - Adjusted R-squared: 0.10 (∆EMBI), 0.09 (∆Interest rate), 0.20 (∆Exchange rate).
  - Number of observations: 685 (EMBI), 689 (Interest rate), 717 (Exchange rate).
  - Selected coefficients:
    - ACTION: -1.38 (2.28) on ∆EMBI; -0.46 (2.23) on ∆Exchange rate.
    - US_EXPFEDRATEUP(-1): 8.51 (2.95) on ∆EMBI; -1.01 (9.98) on ∆Interest rate.
    - IMF: -8.22 (2.80) on ∆EMBI; -4.68 (113.19) on ∆Interest rate.
    - Rating_down: 5.81 (3.99) on ∆EMBI; 1.42 (7.93) on ∆Interest rate.
- Interpretation: mixed evidence of fiscal dominance in Brazil (2002–04): fiscal policy actions affected spreads and exchange rates significantly, but unanticipated primary balance data did not.

### IV. News Analysis — Poland (2002–2004) — selected findings (Table 3 excerpts)
- EMBI spreads:
  - State Budget Balance surprise: -1.93 (3.11) → improved budget performance lowered spreads.
  - Lagged Action_good: -6.84 (2.37) associated with lowering of spreads.
  - U.S. FED surprises: negative contemporaneous impact; US_EXPFEDRATEUP: 8.74 (3.07).
  - Rating(-1): -4.50 (2.69) lowers spreads.
- Interest rate:
  - Affected by surprises in budget balance, CPI and GDP.
  - U.S. FED lagged positive and significant; US_EXPFEDRATEUP -1.84 (14.29).
  - Outlook_up associated with lowering interest rates.
  - EU-related news associated with lowering interest rate (EU: -0.64 (2.07)).
- Exchange rate:
  - Responds to budget balance and central bank policy rate surprises.
  - US_EXPFEDRATEUP lagged positive: 14.53 (37.84) in some specifications.
- Table 3 statistics:
  - Adjusted R-squared: 0.04 (∆EMBI), 0.03 (∆Interest rate), 0.03 (∆Exchange rate).
  - Number of observations: 685 (EMBI), 781 (Interest rate), 673 (Exchange rate).
- Interpretation: fiscal news materially affected spreads, interest rates, and exchange rate in Poland (2002–04).

### IV. News Analysis — Turkey (Aug 2001–Dec 2002 and extended samples) — selected findings
- Crisis-window (Aug 2001–Dec 2002) results (Table 4 excerpts):
  - EMBI spreads:
    - Primary Balance surprise: -1.25 (2.11) (counterintuitive sign noted).
    - Lagged change in central bank policy rate positive and significant on spreads.
    - Outlook_down increases spreads (Outlook_down: 3.08 (2.33)); Outlook_down(-1): -4.05 (3.59) with opposite signs contemporaneous vs lagged.
    - Elections(-1) associated with lowering of spreads (-6.34 (2.94)).
    - EU_bad(-1): 1.56 (1.72) widened EMBI.
  - Domestic interest rate:
    - Lagged change in EMBI positive and highly significant (Change in EMBI (-1): 0.21 (4.70); Change in EMBI (-2): 0.08 (3.10)).
    - Trade balance and cbrate_chg significant.
    - Elections(-1) large negative on long-term interest rate (-10.06 (6.03)).
  - Exchange rate:
    - Exchange rate changes positively and significantly related to lagged EMBI changes (Change in EMBI (-1): 0.18 (7.38)).
    - Primary Balance surprises not significant for exchange rate.
    - U.S. macro news (U.S. CPI(-1), U.S. GDP(-1)) positive and significant on exchange rate.
  - Table 4 statistics:
    - Adjusted R-squared: 0.11 (∆EMBI), 0.24 (∆Interest rate), 0.26 (∆Exchange rate).
    - Number of observations: 281 (EMBI), 295 (Interest rate), 277 (Exchange rate).
- Larger sample (Aug 2001–Dec 2004) — Table 5 highlights and verbatim coefficients:
  - Primary balance news:
    - "News on primary balance does not have a significant impact on changes in the EMBI spread" in the larger sample.
  - Current Account Balance:
    - "A higher than expected current account balance leads to lowering of spreads."
    - Current Account Balance = -1.39   (2.83) in ∆EMBI regression.
  - U.S. CPI:
    - U.S. CPI(-1) = 1.003 (2.19) increased sovereign spreads.
  - Expectations about U.S. policy rates:
    - US_EXPFEDRATEUP (-1) = 15.09  (5.44) in ∆EMBI regression.
    - US_EXPFEDRATEUP = -1.03   (6.88) appears in ∆Exchange rate column (depreciation association noted).
    - Interpretation: "the expectation of an increase in the Fed Funds rate led to an increase in spreads."
  - Domestic interest rate and spreads:
    - Change in EMBI (-1) = 0.25   (3.89) in ∆EMBI column.
    - Change in EMBI (-1) = 0.16   (13.42) in ∆Interest rate column.
    - "Changes in domestic interest rate tend to move together with changes in EMBI spreads during this period."
  - Interest rate drivers:
    - Positive surprises on monthly CPI lead to increases in interest rate.
    - U.S. FED, U.S. GDP, and U.S. PAYROLL have positive and significant impact on changes in the interest rate.
    - Cbrate_chg and US_EXPFEDRATEUP have significant impacts on the interest rate.
  - Fiscal news effects:
    - "Bad fiscal policy announcements and 'bad' fiscal policy actions are highly significant and correctly signed, suggesting that investors over-react to bad political news."
    - Announcement_bad = 0.40    (0.15) in ∆EMBI column; Announcement_bad = 0.61   (6.15) in ∆Interest rate column; Announcement_bad = 0.39   (10.34) in ∆Exchange rate column.
    - Action_bad = -0.70    (0.26) in ∆EMBI column; Action_bad = 0.56   (4.01) in ∆Interest rate column; Action_bad = 0.08   (2.28) in ∆Exchange rate column.
  - Rating and outlook effects:
    - Rating_up = -1.03   (2.75) associated with lowering of spreads (reported under exchange rate column with text noting lowering of spreads).
    - Rating_down (-1) = 0.37   (4.68) reported (associated with exchange rate movement).
    - Outlook_up (-1) = -0.43   (3.36) led to appreciation of the exchange rate.
  - Elections:
    - Elections (-1): ∆EMBI = -6.55   (2.43); ∆Interest rate = -9.49   (36.67); ∆Exchange rate = -0.23   (3.59).
  - Key numeric regression outputs (Table 5 excerpts):
    - Lagged dependent variable:
      - ∆EMBI: 0.07   (1.82)
      - ∆Interest rate: -0.05   (0.88)
      - ∆Exchange rate: 0.14   (3.54)
    - Change in EMBI (-1):
      - ∆EMBI column: 0.25   (3.89)
      - ∆Interest rate column: 0.16   (13.42)
    - Current Account Balance:
      - ∆EMBI column: -1.39   (2.83)
      - ∆Interest rate column: 0.37   (2.63)
    - U.S. FED / U.S. FED(-1):
      - U.S. FED = 0.27   (12.75); U.S. FED(-1) = 0.56   (16.47)
    - U.S. GDP (-1):
      - ∆EMBI: 0.45   (1.93)
      - ∆Interest rate: 0.22   (2.44)
    - U.S. PAYROLL and lag:
      - U.S. PAYROLL = 0.17   (2.15)
      - U.S. PAYROLL(-1) = 0.57   (2.02)
    - Cbrate_chg:
      - ∆EMBI: 0.003  (0.003)
      - ∆Interest rate: 0.70   (3.01)
      - ∆Exchange rate: 0.04   (0.51)
    - US_EXPFEDRATEUP coefficients:
      - ∆EMBI column: US_EXPFEDRATEUP (-1) 15.09  (5.44)
      - ∆Interest rate column: US_EXPFEDRATEUP (-1) 1.48   (15.80)
      - ∆Exchange rate column: US_EXPFEDRATEUP -1.03   (6.88)
    - Adjusted R-squared:
      - ∆EMBI: 0.07
      - ∆Interest rate: 0.16
      - ∆Exchange rate: 0.28
    - Number of observations:
      - ∆EMBI: 661
      - ∆Interest rate: 686
      - ∆Exchange rate: 690
- Interpretation for Turkey and time-variation:
  - "Country premium was affected by budget performance and changes in the central bank’s policy rate during Aug 2001- December 2002."
  - "Changes in the long-term interest rate responded to changes in the EMBI spread and the central bank’s policy rate."
  - "Changes in the exchange rate moved together with changes in the EMBI spread."
  - Lack of a significant relationship between primary balance news and monetary variables for Aug 2001–04 likely reflects cancelling out of crisis-period relationship by subsequent normal-period data.
  - Contextual note: Turkey transitioned rapidly from crisis to strong recovery with robust growth and fiscal performance; "The Turkish economy exhibited signs of fiscal dominance in 2001 and 2002, it clearly emerged out of it in 2003 and 2004 as strong policies were in effect."

### V. Overall empirical conclusions and policy implications (Concluding Remarks)
- Interest rate-inflation relationship:
  - "The analysis of the interest rate-inflation relationship in emerging economies with different levels of debt suggests that monetary policy efficacy is weaker with higher levels of overall and external pubic debt."
  - High public debt appears to constrain monetary policy conduct.
- High-frequency news analysis:
  - "When vulnerabilities are high, budget news has the most significant impact on spreads and the interest rate, and the impact of monetary policy is weakened."
  - Effect seen clearly for Turkey during 2001/02 but not when later data are added.
- Policy implications:
  - "Since the fiscal environment can exert a significant impact on the efficacy of monetary policy directly and through expectations, high public sector debt could reduce the independence of monetary policy, as well as the efficacy of the transmission mechanism."
  - "Thus, in high-debt economies, the monetary-fiscal nexus needs to be taken into account in analyzing economic trends and vulnerabilities and in the design and implementation of policy."
  - "Reducing high public debt ... can, in addition, yield a substantial dividend in terms of enhancing the effectiveness of monetary policy instruments."

*Source: _wp06184 - IMF Working Paper chapter excerpt (provided PDF content).*

### 1. Interest Elasticity and Public Debt..................................................................................

### 1. Interest Elasticity and Public Debt

### I. Introduction — macroeconomic costs and fiscal dominance
- The macroeconomic costs of increased public indebtedness are presented as well known and relatively uncontroversial.
- Key macroeconomic consequences highlighted:
  - Concerns about fiscal sustainability and a possible financial crisis can create an adverse cycle of higher borrowing costs and worsening fiscal balances.
  - As debt and debt payments increase, fiscal space for other expenditures is squeezed.
  - High levels of public debt can impede economic growth via crowding out of private sector borrowing.
- Increased emphasis in recent years on the macroeconomic policy costs of debt, including constraints on monetary policy imposed by fiscal positions.
- The concept of “fiscal dominance” is emphasized:
  - A central issue is the compatibility of a given monetary policy stance with a particular fiscal stance.
  - Monetary authorities may need to compensate for an overly expansionary fiscal policy.
- Recognition that central bank independence does not eliminate fiscal constraints:
  - Fiscal policy actions set the environment in which monetary policy may be strongly influenced and even severely constrained.
  - Even when monetary authorities can offset fiscal developments, the resulting policy mix can significantly affect financial markets and the real economy, including the term structure of interest rates, exchange rates, and inflationary expectations.
- Fiscal constraints on monetary policy occur in both industrial and developing economies:
  - In weak activity environments, large or rising budget deficits are often cited as constraining monetary authorities’ ability to implement accommodative monetary policy.
  - In robust activity environments, expansionary fiscal policy increases the need for tight monetary policy.
- Past fiscal decisions and budgetary developments can play an important role in constraining monetary policy, potentially removing a key instrument for stabilization.

### Illustrative mechanism: debt, interest rates, and monetary policy tradeoffs
- Consideration of an essentially closed economy with a large outstanding stock of government debt held by domestic private agents:
  - An increase in inflation or inflationary expectations would warrant tightening monetary policy.
  - An increase in policy rates raises long-term rates via the term structure, increasing debt-servicing costs.
  - The larger the debt, ceteris paribus, the greater the impact on debt-servicing costs.
  - In such situations fiscal authorities may urge monetary authorities to tighten less than warranted, even though rising inflationary expectations would have led to an increase in long-term nominal interest rates.
  - Tightening monetary policy could help lower inflationary expectations and flatten the yield curve, but fiscal constraints may limit such tightening.

### Objectives, scope, and approaches of the paper
- Main objective: explore issues relating to constraints facing monetary authorities from fiscal positions.
- Specific questions the paper examines:
  - Does the relationship between interest rate and inflation change as the level of public debt rises?
  - Under what circumstances can unanticipated developments (i.e., “news”) about the fiscal situation “dominate” monetary policy measures?
- Two empirical approaches used:
  - Panel-quarterly analysis using quarterly data for a set of 25 emerging markets to evaluate the response of monetary policy to inflation as the level of debt varies.
  - Higher-frequency news analysis to assess the impact of fiscal and other macroeconomic news on sovereign spreads, interest rates, and exchange rates in three major emerging markets: Brazil, Poland, and Turkey.
- Organization note: Section II briefly summarizes the existing literature.

*Source: _wp06184 - 1. Interest Elasticity and Public Debt (IMF working paper chapter excerpt).*

### Section III evaluates whether the response of monetary policy to inflation depends on the

### _wp06184 - Section III evaluates whether the response of monetary policy to inflation depends on the

### II. FISCAL-MONETARY NEXUS: Analytical and Empirical Studies
- Fiscal policy affects monetary policy through:
  - The government budget constraint, central bank financing of deficits, central bank credibility, inflation and inflationary expectations.
  - Fiscal impacts on aggregate demand and thus inflation.
  - Direct effects on interest rates, interest spreads and exchange rates.
- Fiscal theory of the price level (Woodford, 1994): fiscal policy can be the main determinant of the price level when the government’s inter-temporal budget constraint pins down the price level.
- Fiscal dominance (Sargent and Wallace, 1981): when real interest rate > growth rate, monetary policy aimed at reducing inflation can increase debt/GDP and ultimately require more money growth, generating higher future inflation.
- Empirical literature:
  - Industrial-country studies mostly find monetary policy has not accommodated fiscal policy; sometimes monetary tightens in response to loose fiscal policy (Melitz 1997, 2002; Wyplosz 1999).
  - Emerging-market evidence is scarcer and mixed (Tanner and Ramos 2002; IMF 2003; Zoli 2005). Zoli (2005) finds fiscal dominance in Argentina and Brazil for parts of 1990s–2000s; monetary policy conduct not directly affected by changes in real primary balances in some tests.

### II.A Government Budget Constraint, Monetary Policy, and Fiscal Theory of Price Level
- Key mechanisms described:
  - High deficits/debt → higher real interest rates → monetary tightening raises debt/GDP → higher future interest payments and deficits → eventually more money growth and higher inflation.
  - Lower debt could reduce real interest rate below growth rate and restore monetary policy efficacy.
- Fiscal theory illustration: a tax cut reducing present discounted value of future primary balances increases real household wealth, boosts aggregate demand and the price level, reducing real value of government debt.

### II.B Impact of Fiscal Policy on Sovereign Spreads, Interest Rates, and Exchange Rates
- Literature indicates fiscal policy influences real interest rates, interest spreads, and exchange rate vulnerability to crises.
- Evidence: fiscal variables are often significant determinants of real interest rates and interest spreads in emerging markets.
- Large government deficits or perceived fiscal unsustainability increase vulnerability to currency crises.
- Multi-equation models (Blanchard 2004; Favero and Giavazzi 2004; Giavazzi 2003): large public debt increases credit default risk and can push economies into a bad equilibrium where restrictive monetary policy has unconventional effects (tightening may lower inflationary expectations, reduce long-term rates, and become less restrictive or stimulatory).
- Empirical event studies: Zoli (2005) finds fiscal events influenced Brazil’s sovereign spread and exchange rate (2002–04); Emir, Özatay, and Şahinbeyoğlu find no significant impact on 3-month treasury bill rate in Turkey (May 2001–December 2002) from primary balance news.

### III. Cross-Country Analysis — Methodology
- Two-stage empirical approach:
  - Stage 1 (country-by-country): estimate
    - r_it = α_i + β_i π_{t-1,i} + ε_it
      - r_it : overnight interest rate for country i.
      - π_{t-1,i} : rate of inflation over the past twelve months (lagged one period).
    - Variant (1)’ includes change in inflation over preceding two periods:
      - r_it = α_i + β_i π_{t-1,i} + γ_i (π_{t-1,i} - π_{t-2,i}) + ε_it
  - Stage 2 (cross-section): explain cross-country variation in β̂_i:
    - β̂_i = λ + α Z_i + v_i
      - Z_i includes: total public debt (share of GDP), external debt (share of GDP), external debt as share of total debt, financial liberalization index, index of central bank independence.
    - Estimation via weighted least squares (weights = standard errors of β̂_i).
  - Additional robustness: panel regressions estimating
    - r_it = α + β_1 π_{t-1,i} + β_2 debt_{it} + β_3 (π_{t-1,i} * debt_{it}) + ... (equation (3)).

### III. Cross-Country Analysis — Data
- Sample: twenty-five emerging market economies (listed in source).
- Quarterly data covering 1992Q1 to 2005Q2 (sample shorter for some countries).
- Stage 1 regressions: overnight rates from Bloomberg, Datastream, IFS; inflation = annual % change in CPI from IFS.
- Stage 2 explanatory variables:
  - Debt-to-GDP and external debt-to-GDP from IMF internal public debt dataset.
  - Financial liberalization index = updated Abiad and Mody (2003) index (7 dimensions; 4-point scale 0–3).
  - Central bank independence proxied by Central Bank Governor’s turnover rate index (Dreher, Sturm, de Haan 2005).

### III. Cross-Country Analysis — Results (summary of Table 1 findings)
- Main finding: response of overnight interest rate to inflation weakens with higher debt ratios.
  - "The higher the debt ratios, the lower the response."
- External debt ratio coefficient larger in some specifications, but when both overall debt and external debt included, only overall debt is significant.
- Financial liberalization index:
  - Positive and statistically significant in one specification (column (6)): higher financial liberalization → stronger response of overnight rate to inflation.
  - Not consistently significant across all specifications.
- Central bank independence index:
  - No significant relationship found between interest-rate response to inflation and degree of central bank independence.
- Table 1 specific reported coefficients (selected, verbatim as in source):
  - Debt/GDP: -0.02 (6.31)*** in column (1); -0.02 (5.52)*** in (2); -0.02 (1.99)* in (3); 0.03 (2.20)** in (4); 0.005 (0.39) in (5); -0.02 (3.25)*** in (6); 0.003 (0.32) in (7).
  - External debt/GDP: -0.03 (1.84)* in (2); 0.002 (0.16) in (3); -0.03 (3.00)*** in (5); -0.07 (3.65)*** in (6); -0.04 (2.54)** in (7); -0.04 (5.47)*** in (8); -0.04 (3.46)*** in (9); -0.04 (3.46)*** in (10).
  - Financial Liberalization Index: -0.14 (0.12) in (3); 0.96 (0.97) in (4); 1.69 (1.78)* in (6); -0.29 (0.23) in (7).
  - Index of Central Bank Independence: -0.67 (0.96) in (6); -0.45 (0.72) in (7); -0.18 (0.37) in (8); -0.18 (0.36) in (9).
  - Sample (Stage 1 regression): 1992Q1-2005Q2 shown for several specifications; one specification uses 1992Q1-2002Q2.
  - Number of observations and Adjusted R-squared reported per column (see Table 1 for exact layout); examples:
    - No. of observations: 25 in columns (1)-(3); 18 in columns (4)-(6); 22 in columns (7)-(10).
    - Adjusted R-squared: 0.71 in (1); 0.31 in (2); 0.70 in (3); 0.54 in (4); 0.63 in (5); 0.73 in (6); 0.83 in (7); 0.69 in (8); 0.81 in (9); 0.78 in (10).
- Interpretation: high levels of public indebtedness are likely to constrain the conduct of monetary policy in emerging market economies.

### IV. News Analysis — Methodology
- Purpose: explore channels where fiscal policy affects sovereign spreads, interest rates, and exchange rates using daily data (Brazil, Poland, Turkey).
- Reduced-form regression (for each country):
  - Y_t = α + Σ β_i X_{i,t} + ε_t
    - Y_t = daily % change in country premium (EMBI Plus sub-index), or daily % change in nominal exchange rate vis-à-vis US dollar, or daily % change in domestic long-term interest rate.
  - Sample period: January 1, 2002–December 31, 2004 (three-country study); Turkey also analyzed August 2001–December 2002 for crisis period.
- Regressors X_t include:
  - Unexpected components ("surprises") of domestic fiscal and macroeconomic announcements (surprise = official data − forecasts from Bloomberg and JP Morgan’s Global Data Watch) divided by standard error.
  - Unexpected components of U.S. macro announcements (including changes in Fed Funds rate).
  - Dummy variables for fiscal policy events:
    - ACTION: concrete fiscal policy actions (e.g., budget cuts, steps on pension/tax reform).
    - ANNOUNCEMENT: government announcements without immediate concrete actions (e.g., declared intention to raise public sector surplus).
    - Each broken into good/bad: Action_good, Action_bad, Announcement_good, Announcement_bad.
  - Dummies for Elections, IMF news (IMF), rating agency events (Rating_up, Rating_down, Outlook_up, Outlook_down), EU-related news for Poland and Turkey (EU), and US_EXPFEDRATEUP (Jan 28, 2004 dummy).
  - Regressors also entered with lags to capture delayed market responses.
- Rationale: isolate market reaction to surprises and categorize fiscal news by type and perceived quality.

### IV. News Analysis — Results: General
- VAR impulse-response analysis for Brazil, Poland, Turkey:
  - Shocks to EMBI spread, exchange rate, long-term interest rates generally have little impact on the other two variables and any impacts are short-lived.
  - Implies reduced-form regressions are appropriate for daily news-impact analysis.

### IV. News Analysis — Brazil (2002–2004) (summary of Table 2)
- Impact on EMBI spreads:
  - PRIMPSBR (primary public sector borrowing requirement) news: not significant.
  - ACTION (fiscal policy actions): coefficient negative and significant at 5 percent → favorable fiscal actions reduced perceived default risk.
  - SELIC (unanticipated change in central bank policy rate): not significant contemporaneously.
  - U.S. FED (unanticipated change in Fed Funds): negative and significant.
  - US_EXPFEDRATEUP (Jan 28, 2004 expectation dummy): lagged variable positive and significant.
  - IMF dummy (contemporaneous and lagged): negative and significant.
  - Rating_down and Outlook_down: positive and highly significant.
- Impact on domestic long-term interest rate:
  - Changes in domestic interest rates move with EMBI spreads (positive, significant).
  - SELIC surprise associated with increases in domestic interest rate.
  - Outlook downgrades increase interest rates.
  - Elections dummy negative and significant.
- Impact on exchange rate:
  - Lagged change in EMBI spread: positive and highly significant.
  - ACTION: negative and significant → good fiscal actions appreciated exchange rate.
  - PRIMPSBR: insignificant.
  - SELIC unexpected change: negative and significant on exchange rate changes.
  - Rating_down, Outlook_up, IMF significant with expected signs.
- Table 2 statistics (verbatim examples):
  - Adjusted R-squared: 0.10 (∆EMBI), 0.09 (∆Interest rate), 0.20 (∆Exchange rate).
  - Number of observations: 685 (EMBI), 689 (Interest rate), 717 (Exchange rate).
  - Selected coefficients (with t-statistics in parentheses, exact as in source):
    - ACTION: -1.38 (2.28) on ∆EMBI; -0.46 (2.23) on ∆Exchange rate.
    - US_EXPFEDRATEUP(-1): 8.51 (2.95) on ∆EMBI; -1.01 (9.98) on ∆Interest rate.
    - IMF: -8.22 (2.80) on ∆EMBI; -4.68 (113.19) on ∆Interest rate.
    - Rating_down: 5.81 (3.99) on ∆EMBI; 1.42 (7.93) on ∆Interest rate.

- Interpretation: mixed evidence of fiscal dominance in Brazil (2002–04): fiscal policy actions affected spreads and exchange rates significantly, but unanticipated primary balance data did not.

### IV. News Analysis — Poland (2002–2004) (summary of Table 3)
- Impact on EMBI spreads:
  - State Budget Balance: coefficient -1.93 (3.11) → improved budget performance lowered spreads.
  - Action_good: lagged Action_good -6.84 (2.37) associated with lowering of spreads.
  - U.S. FED surprises: negative contemporaneous impact; US_EXPFEDRATEUP 8.74 (3.07).
  - Rating improvements lower spreads (Rating(-1): -4.50 (2.69)).
- Impact on interest rate:
  - Interest rate changes affected by surprises in budget balance, CPI and GDP.
  - U.S. FED lagged positive and significant; US_EXPFEDRATEUP -1.84 (14.29).
  - Outlook_up associated with lowering interest rates.
  - EU-related news associated with lowering interest rate (EU: -0.64 (2.07)).
- Impact on exchange rate:
  - Exchange rate responds to budget balance and central bank policy rate surprises.
  - Change in EMBI (-1) included but sign may be unexpected in some specifications.
  - US_EXPFEDRATEUP lagged positive: 14.53 (37.84) in some specifications.
- Table 3 statistics:
  - Adjusted R-squared: 0.04 (∆EMBI), 0.03 (∆Interest rate), 0.03 (∆Exchange rate).
  - Number of observations: 685 (EMBI), 781 (Interest rate), 673 (Exchange rate).

- Interpretation: fiscal news materially affected spreads, interest rates, and exchange rate in Poland (2002–04).

### IV. News Analysis — Turkey (2001–2002 and extended to 2004) (summary of Table 4)
- Two sample periods analyzed; Table 4 reports Aug 2001–Dec 2002 results.
- Impact on EMBI spreads:
  - Primary Balance surprise: coefficient -1.25 (2.11) (counterintuitive sign noted in source).
  - Change in central bank policy rate (lagged) positive and significant on spreads.
  - Outlook_down increases spreads (Outlook_down: 3.08 (2.33); Outlook_down(-1): -4.05 (3.59) with opposite signs contemporaneous vs lagged).
  - Elections(-1) associated with lowering of spreads (-6.34 (2.94)).
  - EU_bad(-1) 1.56 (1.72) widened EMBI.
- Impact on domestic interest rate:
  - Lagged change in EMBI positive and highly significant on interest rate (Change in EMBI (-1): 0.21 (4.70); Change in EMBI (-2): 0.08 (3.10)).
  - Trade balance and changes in central bank overnight rate (cbrate_chg) significant.
  - Elections(-1) large negative on long-term interest rate (-10.06 (6.03)).
- Impact on exchange rate:
  - Exchange rate changes positively and significantly related to lagged EMBI changes (Change in EMBI (-1): 0.18 (7.38)).
  - Primary Balance surprises not significant for exchange rate.
  - U.S. macro news: U.S. CPI(-1) and U.S. GDP(-1) positive and significant on exchange rate.
- Table 4 statistics:
  - Adjusted R-squared: 0.11 (∆EMBI), 0.24 (∆Interest rate), 0.26 (∆Exchange rate).
  - Number of observations: 281 (EMBI), 295 (Interest rate), 277 (Exchange rate).

- Interpretation: Turkey’s results show mixed and sometimes counterintuitive effects of fiscal news on spreads and macro variables during the crisis window; domestic policy-rate changes and EMBI dynamics are tightly linked to domestic long-term interest rates and exchange rates.

### IV. Overall empirical conclusions from News Analysis
- Fiscal policy actions (concrete measures) tend to have more pronounced and intuitively signed effects on sovereign spreads and exchange rates than surprises in primary balance data in some cases.
- Global factors (U.S. Fed policy surprises and expectations) significantly influence emerging-market spreads and interest rates; US_EXPFEDRATEUP dummy displays strong coefficients.
- Rating agency downgrades/upgrades and IMF involvement have sizeable and expected impacts on spreads and interest rates.
- Relations across EMBI spreads, exchange rates, and long-term interest rates are often short-lived and limited in cross-impact, supporting the use of reduced-form daily regressions.

*Source: _wp06184 - Section III evaluates whether the response of monetary policy to inflation depends on the (text provided).*

### 1. All dependent variables are expressed as daily percentage changes.

### _wp06184 - 1. All dependent variables are expressed as daily percentage changes.

### Main findings from regressions (Turkey, August 2001–December 2004)
- Sample: August 2001 to December 2004 (Table 5).
- News on primary balance:
  - "News on primary balance does not have a significant impact on changes in the EMBI spread" during this period.
  - For the larger sample (August 2001–04) "we do not find any significant relationship between data releases on primary balance and any of the dependent variables."
- Current account balance:
  - "A higher than expected current account balance leads to lowering of spreads."
  - Coefficient reported: Current Account Balance = -1.39   (2.83) in ∆EMBI regression.
- U.S. CPI:
  - "A positive surprise on U.S. CPI led to an increase in sovereign spreads."
  - U.S. CPI(-1) = 1.003 (2.19) reported in Table 5.
- Expectations about U.S. policy rates:
  - US_EXPFEDRATEUP (lagged) is positive and highly significant for spreads: US_EXPFEDRATEUP (-1) = 15.09  (5.44) in ∆EMBI regression.
  - US_EXPFEDRATEUP is associated with depreciation in the exchange rate in this period: US_EXPFEDRATEUP = -1.03   (6.88) appears in ∆Exchange rate column.
  - Interpretation: "the expectation of an increase in the Fed Funds rate led to an increase in spreads."
- Domestic interest rate and spreads:
  - "Changes in domestic interest rate tend to move together with changes in EMBI spreads during this period (column 2)."
  - Change in EMBI (-1) = 0.25   (3.89) in ∆EMBI regression; Change in EMBI (-1) = 0.16   (13.42) in ∆Interest rate regression.
- Interest rate drivers:
  - Positive surprises on monthly CPI lead to an increase in the interest rate.
  - U.S. FED, U.S. GDP, and U.S. PAYROLL have positive and significant impact on changes in the interest rate.
  - Cbrate_chg and US_EXPFEDRATEUP have a significant impact on the interest rate.
- Fiscal news effects:
  - "Bad fiscal policy announcements and 'bad' fiscal policy actions are highly significant and correctly signed, suggesting that investors over-react to bad political news."
  - Announcement_bad = 0.40    (0.15) in ∆EMBI column; Announcement_bad = 0.61   (6.15) in ∆Interest rate column; Announcement_bad = 0.39   (10.34) in ∆Exchange rate column.
  - Action_bad = -0.70    (0.26) in ∆EMBI column; Action_bad = 0.56   (4.01) in ∆Interest rate column; Action_bad = 0.08   (2.28) in ∆Exchange rate column.
- Rating and outlook effects:
  - Rating_up led to lowering of spreads during this period: Rating_up = -1.03   (2.75) in ∆Exchange rate column (reported under exchange rate column but text states lowering of spreads).
  - Rating_down (-1) = 0.37   (4.68) reported (associated with exchange rate movement).
  - Outlook_up (-1) = -0.43   (3.36) led to appreciation of the exchange rate.
- Elections:
  - Elections (-1) coefficients reported: ∆EMBI = -6.55   (2.43); ∆Interest rate = -9.49   (36.67); ∆Exchange rate = -0.23   (3.59).

### Key numeric regression outputs (Table 5 excerpts)
- Lagged dependent variable:
  - ∆EMBI: 0.07   (1.82)
  - ∆Interest rate: -0.05   (0.88)
  - ∆Exchange rate: 0.14   (3.54)
- Change in EMBI (-1):
  - ∆EMBI column: 0.25   (3.89)
  - ∆Interest rate column: 0.16   (13.42)
- Current Account Balance:
  - ∆EMBI column: -1.39   (2.83)
  - ∆Interest rate column: 0.37   (2.63)
- U.S. FED / U.S. FED(-1):
  - U.S. FED appears in ∆Interest rate and ∆Exchange rate regressions: U.S. FED = 0.27   (12.75); U.S. FED(-1) = 0.56   (16.47)
- U.S. GDP (-1):
  - ∆EMBI: 0.45   (1.93)
  - ∆Interest rate: 0.22   (2.44)
- U.S. PAYROLL and lag:
  - U.S. PAYROLL = 0.17   (2.15)
  - U.S. PAYROLL(-1) = 0.57   (2.02)
- Cbrate_chg:
  - ∆EMBI: 0.003  (0.003)
  - ∆Interest rate: 0.70   (3.01)
  - ∆Exchange rate: 0.04   (0.51)
- US_EXPFEDRATEUP coefficients:
  - ∆EMBI column: US_EXPFEDRATEUP (-1) 15.09  (5.44)
  - ∆Interest rate column: US_EXPFEDRATEUP (-1) 1.48   (15.80)
  - ∆Exchange rate column: US_EXPFEDRATEUP -1.03   (6.88)
- Announcement_bad / Action_bad (see above for values).
- Adjusted R-squared:
  - ∆EMBI: 0.07
  - ∆Interest rate: 0.16
  - ∆Exchange rate: 0.28
- Number of observations:
  - ∆EMBI: 661
  - ∆Interest rate: 686
  - ∆Exchange rate: 690
- Notes:
  - "All dependent variables are expressed as daily percentage changes."
  - Interest rate regressions estimated using Newey-West heteroskedasticity and autocorrelation consistent standard errors.
  - "All regressions are estimated including a constant (not reported). Absolute values of t-statistics are reported in parentheses. Coefficients in bold are significant either at the 1, 5, or 10 percent level."

### Interpretation for Turkey and time-variation
- Period-specific dynamics:
  - "country premium was affected by budget performance and changes in the central bank’s policy rate during Aug 2001- December 2002."
  - "Changes in the long-term interest rate responded to changes in the EMBI spread and the central bank’s policy rate."
  - "Changes in the exchange rate moved together with changes in the EMBI spread."
- Subsample vs. larger sample:
  - The lack of a significant relationship between primary balance news and monetary variables for August 2001–04 "likely reflects a cancelling out of the relationship seen in 2001/02 by subsequent data from a more 'normal' period."
  - Context: "Turkey’s rapid transition from the financial crisis to a strong recovery characterized by robust economic growth and fiscal performance during the period in discussion."
  - "The Turkish economy exhibited signs of fiscal dominance in 2001 and 2002, it clearly emerged out of it in 2003 and 2004 as strong policies were in effect."

### Broader conclusions and policy implications (Concluding Remarks)
- Monetary policy efficacy and public debt:
  - "The analysis of the interest rate-inflation relationship in emerging economies with different levels of debt suggests that monetary policy efficacy is weaker with higher levels of overall and external pubic debt."
  - "This, in turn, appears to illustrate a constraint that high public debt may impose on monetary policy."
- High-frequency news analysis (Brazil, Turkey, Poland):
  - "When vulnerabilities are high, budget news has the most significant impact on spreads and the interest rate, and the impact of monetary policy is weakened."
  - Effect seen clearly for Turkey during 2001/02, but not when subsequent data are added.
- Policy implication:
  - "Since the fiscal environment can exert a significant impact on the efficacy of monetary policy directly and through expectations, high public sector debt could reduce the independence of monetary policy, as well as the efficacy of the transmission mechanism."
  - "Thus, in high-debt economies, the monetary-fiscal nexus needs to be taken into account in analyzing economic trends and vulnerabilities and in the design and implementation of policy."
  - "Reducing high public debt ... can, in addition, yield a substantial dividend in terms of enhancing the effectiveness of monetary policy instruments."

### Appendix material referenced
- Impulse Response Functions:
  - Figures reported for Brazil, Poland, and Turkey (Turkey: 2001–2004), titled "Impulse Response Functions" with responses to generalized one S.D. innovations ± 2 S.E. (figures and series names shown in source).
- Variable definitions and data sources (for Brazil; example entries listed):
  - Dependent variables:
    - ∆EMBI: "Daily percentage change in the Brazilian component of the Emerging Market Bond Index Plus (EMBI+). Source: Datastream and J. P Morgan."
    - ∆Interest rate: "Daily percentage change in the domestic interest rate. The interest rate used is the ‘360 days future interest rate’. Source: IMF country data."
    - ∆Exchange rate: "Daily percentage change in the exchange rate vis-à-vis the U.S. dollar. An increase indicates a depreciation. Source: Datastream."
  - Explanatory variables examples:
    - Primpsbr: "Previous month Primary Public Sector Borrowing Requirement, difference between official data release and its forecasted value. Source: JP Morgan 'Global Data Watch'."
    - Selic: "latest SELIC target rate (percent), difference between official data release and its forecasted value. Source: Bloomberg."
    - US_EXPFEDRATEUP: "Dummy for expected increase in the U.S. Federal Funds rate (28 January, 2004)."
    - Rating down / Outlook up / Outlook down / Elections / IMF: dummies with described definitions and specific event examples.
  - Announcements: listing of "Good" and "Bad" announcement dates and descriptions for Brazil (examples provided).

*Source: Authors' estimates as presented in the provided content.*

### 4.25 percent, down form the previous primary budget goal of 4.5 percent.

### _wp06184 - 4.25 percent, down form the previous primary budget goal of 4.5 percent.

### Actions (Brazil — timeline of fiscal measures and reforms)
- Good:
  - 8 February, 2002: Government withholds 12.4 bln in spending from 2002 budget approved by Congress.
  - 13 June, 2002: Government introduces package of measures to increase surplus, and pay back some of foreign debt.
  - 30 October, 2002: New president rejects calls from state governors for an immediate renegotiation of debt.
  - 18 December, 2002: Congress approved budget law envisages a surplus for 2003.
  - 11 February, 2003: Government introduces a series of budgetary cuts.
  - 30 April, 2003: President delivers tax and pension reform plan to Congress.
  - 28 May, 2003: Lower house judicial committee approves tax reform bill.
  - 4 June, 2003: Lower house judicial committee approves pension reform bill.
  - 23 July, 2003: Lower house pension ad hoc committee approves pension reform plan.
  - 5 August, 2003: Lower house approves pension reform (first vote).
  - 26 August, 2003: Lower house approves pension reforms (second vote).
  - 27 August, 2003: Lower house pension ad hoc committee approves tax reform plan.
  - 3 September, 2003: Lower house approves tax reform (first vote).
  - 23 September, 2003: Government introduces spending cuts.
  - 24 September, 2003: Lower house approves tax reforms (second vote).
  - 3 October, 2003: Senate judicial committee approves pension reform.
  - 5 November, 2003: Senate judicial committee approves tax reform.
  - 26 November, 2003: Senate approves pension reforms (first vote).
  - 11 December, 2003: Senate approves pension reforms (second vote) and tax reform (first vote).
  - 17 December, 2003: Senate approves tax reforms (second vote).
  - 24 December, 2003: Congress approved budget for 2004 envisages a surplus at 4.25 percent of GDP, which is the same as IMF target from 2003.
  - 5 February, 2004: Constitution and Justice committee approves second and third phase of tax and pension reforms.
  - 29 April, 2004: Government raises minimum wage, which affects state pension payments, by a limited amount, ignoring pressures for a bigger rise.
  - 4 May, 2004: Lower house approves legislation to enact the pension reform.
  - 18 August, 2004: The supreme court rules that the public pension sector reform proposed by the government is constitutional.
- Bad:
  - 17 June, 2004: Senate raises minimum wages more than Lula’s proposal.

### Poland — Dependent variables (definitions and sources)
- ∆EMBI: Daily percentage change in the Polish component of the Emerging Market Bond Index Plus (EMBI+). The EMBI+ tracks total returns for actively traded external debt instruments in emerging markets. It includes US-dollar denominated Brady bonds, Eurobonds, and traded loans issued by sovereign entities. Source: Datastream and J. P Morgan.
- ∆Interest rate: Daily percentage change in the domestic interest rate. The interest rate used is the yield on a local currency denominated government bond with 5-year maturity. Source: IMF country data.
- ∆Exchange rate: Daily percentage change in the exchange rate vis-à-vis the U.S. dollar. An increase indicates a depreciation. Source: National Bank of Poland.

### Poland — Explanatory variables (definitions and sources)
- CPI: Difference between official data release and the forecasted value of the previous month’s Consumer Price Index (month on month). Source: Bloomberg
- GDP: Difference between official data release and forecasted value of annual gross domestic product growth (in percent). Source: Bloomberg.
- State budget balance: Difference between official data release and the forecasted value of the previous month’s budget balance (in Polish Zloty, billions). Source: JP Morgan ‘Global Data Watch’.
- Central Bank rate: Difference between official data release and the forecasted value of the latest National Bank of Poland policy rate (14-day intervention rate). Source: Forecasts obtained from BRE Bank SA.
- Current account balance: Difference between official data release and the forecasted value of the previous month’s current account balance. Source: Bloomberg
- Announcement: Government announcements representing statements unaccompanied by immediate concrete actions, such as the declaration of the intention to raise the public sector surplus, also aiming at reassuring market participants.
  - Good:
    - 21 June, 2002: Government agrees on a conservative ceiling for budget deficit.
    - 16 July, 2002: New ministry on finance pledges to trim budget deficit.
    - 26 July, 2002: In a speech to the parliament, ministry on finance pledges to trim budget deficit.
    - 5 September, 2002: Ministry of finance pledges to narrow 2003 budget deficit.
    - 19 September, 2002: Ministry of finance announces that government will lower target for budget deficit.
    - 24 October, 2002: Ministry of finance announces that in January he will present a plan to reform public finances.
    - 28 February, 2003: Ministry of finance outlines a new plan to reform public finance.
    - 10 June, 2003: Cabinet sets lower 2004 budget target than expected.
    - 10 July, 2003: Economy minister pledges to reduce the following year’s budget.
    - 5 November, 2003: Ministry of finance announces plan to introduce key reforms to trim budget deficit.
    - 27 February, 2004: Government unveils a new austerity program.
    - 8 June, 2004: Government announces it will reduce the deficit in 2005.
    - 20 August, 2004: Ministry of finance pledges to reduce budget deficit in 2005.
  - Bad:
    - 2 July, 2002: Government revises upwards ceiling for budget deficit.
    - 21 January, 2003: Ministry of finance announces that budget reforms proposal will be postponed.
    - 25 July, 2003: Government revises upwards target for 2004 budget deficit.
    - 10 September, 2003: Prime minister announces that fiscal policy tightening will start only in 2005.
    - 24 September, 2003: Government announces it will order spending cuts starting only in the following years.
- Action: Fiscal policy actions that might have enhanced investor confidence, such as budgetary cuts, or important steps in the advancement of pension and tax reforms.
  - Good:
    - 16 February, 2002: Parliament approves fiscal austerity plan.
    - 8 October, 2003: Government approves some spending cuts.
    - 27 January, 2004: Government approves program to reduce budget deficit.
    - 30 August, 2004: Government sends a draft budget plan for 2005 envisaging a cut in headline deficit.
    - 4 November, 2004: Senate approves increase in top income tax rate.
    - 29 November, 2004: Parliament approves 2005 budget bill envisaging a lower deficit.
  - Bad:
    - 17 June, 2003: Cabinet approves plan to reduce corporate income tax rate.
    - 4 December, 2003: Parliament gives first approval to 2004 budget bill trimming deficit by a small amount.
    - 19 December, 2003: Parliament approves 2004 budget envisaging higher deficit than in previous year.
    - 16 July, 2004: Parliament approves a watered version of the government proposal to reform the pension system.
    - 1 December, 2004: President fails to sign bill on increase in top income tax.
- Rating: This variable takes the values -1, 0, 1, with -1 indicating a rating downgrade, 0 indicating no change, and +1 indicating a rating upgrade by any one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- Outlook up: Dummy corresponding to the days when Poland’s outlook was upgraded by one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- Outlook down: Dummy corresponding to the days when Poland’s outlook was downgraded by one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- EU: EU accession related news that might have impacted investor confidence. The complete list is available upon request.

### Turkey — Dependent variables (definitions and sources)
- ∆EMBI: Daily percentage change in the Turkish component of the Emerging Market Bond Index Plus (EMBI+). Source: Datastream and J. P Morgan.
- ∆Interest rate: Daily percentage change in the domestic interest rate. The interest rate used is the ‘benchmark bond interest rate’ (in percent, compounded) which is derived from various local currency papers of different maturities. Source: IMF country data.
- ∆Exchange rate: Daily percentage change in the exchange rate vis-à-vis the U.S. dollar. An increase indicates a depreciation. Source: Central Bank of Turkey.

### Turkey — Explanatory variables (definitions and sources)
- Current account balance: Difference between official data release and the forecasted value of the previous month’s current account balance (in US$ billion). Source: JP Morgan ‘Global Data Watch’. Release dates were obtained from the Central Bank of Turkey.
- Trade balance: Difference between official data release and the forecasted value of the previous month’s trade balance (in US $ billion). Source: JP Morgan ‘Global Data Watch’. Release dates were obtained from the Central Bank of Turkey.
- CPI: Difference between official data release and the forecasted value of the previous month’s Consumer Price Index (percent, month on month). Source: Bloomberg
- Primary balance: Difference between official data release and the forecasted value of the previous month’s primary balance (in TL trillions, current prices). Source: JP Morgan ‘Global Data Watch’. Data release dates obtained from the Central Bank of Turkey.
- Cbrate_chg: Daily change in the Central Bank’s policy rate (overnight borrowing rate). Source: Bloomberg
- US_EXPFEDRATEUP: Dummy for expected increase in the U.S. Federal Funds rate (28 January, 2004).
- Rating up: Dummy corresponding to the days when Turkey’s rating was upgraded by one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- Rating down: Dummy corresponding to the days when Turkey’s rating was downgraded by one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- Rating: This variable takes the values -1, 0, 1, with -1 indicating a rating downgrade, 0 indicating no change, and +1 indicating a rating upgrade by any one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- Outlook up: Dummy corresponding to the days when Turkey’s outlook was upgraded by one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- Outlook down: Dummy corresponding to the days when Turkey’s outlook was downgraded by one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- Outlook: This variable takes the values -1, 0, 1, with -1 indicating an outlook downgrade, 0 indicating no change, and +1 indicating an outlook upgrade by any one of the major rating agencies (Moody’s, Standard & Poor’s, and Fitch).
- Elections: A dummy for election days (November 3, 2002)
- EU_bad, EU_good: EU accession related news that might have had a negative (EU_bad) or a positive (EU_good) impact on investor confidence. The complete list is available upon the authors.
- IMF: IMF related news that might have enhanced investor confidence. The complete list is available upon the authors.

### Turkey — Announcement and Action events (selected)
- Announcement — Good:
  - 18 October, 2001: Minister of finance says he is determined to introduce large cuts in 2002 budget.
  - 24 September, 2002: Minister of finance says the government will present soon to parliament a tax reform agreed with the IMF.
  - 16 November, 2002: New government promises a series of economic reforms to keep IMF rescue package on track.
  - 18 December, 2002: Government reaffirms commitment to primary budget target agreed upon with the IMF.
  - 13 January, 2003: Government pledges to press forward with privatization.
- Announcement — Bad:
  - 8 October, 2002: Minister of finance says a tax reform package will be sent to parliament later than initially planned.
- Action — Good:
  - 12 December, 2001: Parliament approved 2002 budget with strict IMF backed spending cuts.
  - 17 May, 2002: Government sends to parliament an IMF backed tax reform bill.
  - 6 June, 2002: Parliament approves an IMF backed tax reform bill.
  - 23 September, 2002: Government adopts a budget draft for envisaging a lower deficit.
  - 18 October, 2002: Released draft budget bill for 2003 targets primary surplus in line with IMF target.
  - 8 January, 2003: Government unveils revenue package.
  - 3 March, 2003: Government drafts 2003 budget in line with IMF target.
  - 25 March, 2003: Parliament passes the IMF backed 2003 budget.
  - 9 May, 2003: Government approves a privatization plan.
  - 17 July, 2003: Parliament passes social security reform bill.
  - 11 February, 2004: Government sets new privatization plan for 2004.
- Action — Bad:
  - 29 January, 2003: President vetoes a tax reform bill.

### News on U.S. macroeconomic variables (definitions and sources)
- U.S. Fed: Difference between official data release and the forecasted value of the latest Fed Funds target rate (in percent). Source: Bloomberg.
- U.S. CPI: Difference between official data release and the forecasted value of the previous month’s consumer price index inflation (in percent). Source: Bloomberg.
- U.S. Trade balance: Difference between official data release and the forecasted value of the previous month’s trade balance. Source: Bloomberg.
- U.S. GDP: Difference between official data release and the forecasted value of the latest annual gross domestic product (in percent). Source: Bloomberg.
- U.S. Payroll: Difference between official data release and the forecasted value of the previous month’s change in nonfarm payrolls (in thousands). Source: Bloomberg.

*Source: IMF Working Paper content from the provided PDF.*

### References

### _wp06184 - References

### Monetary and Fiscal Policy Interaction; Fiscal Theory of the Price Level
- Alesina, Alberto, and Guido Tabellini, 1987, “Rules and Discretion with Non-coordinated Monetary and Fiscal Policy,” Economic Inquiry, Vol. 25 (October), pp. 619–30.
- Alesina, Alberto, Olivier Blanchard, Jordi Galí, Francesco Giavazzi, and Harald Uhlig, 2001, “Defining a Macroeconomic Framework for the Euro Area: Monitoring the European Central Bank (3) (London: Center for Economic Policy Research).
- Beetsma, Roel, and Herik Jensen, 2002, “Monetary and Fiscal Policy Interactions in a Microfounded Model of a Monetary Union,” CEPR Discussion Paper No. 3591 (London: Center for Economic Policy Research).
- Benhabib Jess, Stephanie Schmitt-Grohe, and Martin Uribe, 2001, “Monetary Policy and Multiple Equilibria,” American Economic Review, Vol. 91, (March) pp. 167–86.
- Benigno, Paolo, and Michael Woodford, 2003, “Optimal Monetary and Fiscal Policy: A Linear-Quadratic Approach,” NBER Working Paper No. 9905 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Blanchard, Olivier, 2004, “Fiscal Dominance and Inflation Targeting: Lessons from Brazil,” NBER Working Paper No. 10389 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Chari, V.V., L. J. Christiano, and P.J. Kehoe, 1991, “Optimal Fiscal and Monetary Policy: Some Recent Results,” Journal of Money, Credit and Banking, Vol. 23, No. 3, pp. 519–39.
- Christiano, Lawrence, and Terry Fitzgerald, 2000, “Understanding the Fiscal Theory of the Price Level,” NBER Working Paper No. 7668 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Cukierman, A., 1992, Central Bank Strategy, Credibility and Independence: Theory and Evidence (Cambridge, Massachusetts: MIT Press).
- Cukierman, A., S. Webb, and B. Neyapti, 1992, “Measuring the Independence of Central Banks and its Effect on Policy Outcomes,” The World Bank Economic Review, Vol. 6 (September), pp. 352–98.
- Dixit, Avinash, and Luisa Lambertini, 2001, “Monetary-Fiscal Policy Interactions and Commitment versus Discretion in a Monetary Union,” European Economic Review, 45, pp. 977–87.
- Leeper, Eric, 1991, “Equilibria under Active and Passive Monetary Policies,” Journal of Monetary Economics, 27, pp. 129–47.
- Lucas, R. E., Jr., and Nancy L. Stokey, 1983, “Optimal Fiscal and Monetary Policy in an Economy without Capital,” Journal of Monetary Economics, 12, pp. 55–93.
- McCallum, Bennett T., 1997, “Issues in the Design of Monetary Policy Rules,” NBER Working Paper No. 6016 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Melitz, Jacques, 1997, “Some Cross-country Evidence about Debt, Deficits and the Behavior of Monetary and Fiscal Authorities,” CEPR Discussion paper No. 1653 (London: Center for Economic Policy Research).
- Melitz, Jacques, 2002, “Debt, Deficits and the Behavior of Monetary and Fiscal Authorities,” in Marco Buti, Jürgen von Hagen, and Carlos Martinez-Mongay, The Behavior of Fiscal Authorities – Stabilization, Growth and Institutions, Palgrave, pp. 215–40.
- Plosser, Charles I., 1987, “Fiscal Policy and the Term Structure,” Journal of Monetary Economics, Vol. 20 No. 2, pp. 343–67.
- Plosser, Charles I., 1982, “Government Financing Decisions and Asset Returns,” Journal of Monetary Economics, Vol. 9, pp. 325–52.
- Schmitt-Grohe, Stephanie, and Martin Uribe, 2000, “Price Level Determinacy and Monetary Policy under a Balanced-Budget Requirement,” Journal of Monetary Economics, Vol. 45 No. 1, pp. 211–46.
- Sims, Christopher, 1994, “A Simple Model for Study of the Price Level and the Interaction of Monetary and Fiscal Policy,” Economic Theory, 4, pp. 381–399.
- Sims, Christopher, 1995, “Econometric Implications of the Government Budget Constraint,” mimeo.
- Sims, Christopher, 1997, “Fiscal Foundations of Price Stability in Open Economies,” mimeo.
- Sims, Christopher, 1998, “The Precarious Fiscal Foundations of EMU,” Mimeo.
- Woodford, Michael, 1994, “Monetary Policy and Price Level Determinacy in a Cash-in-advance Economy,” Economic Theory, 4:345-380.
- Woodford, Michael, 2000, “Fiscal Requirements for Price Stability,” Journal of Money Credit and Banking, Vol. 33(3), pp 669-728.
- Canzoneri, Matthew, and Behzad Diba, 1998, “Fiscal Constraints on Central Bank Independence and Price Stability,” in J. Malo de Molina, J. Vinals, F. Gutierrez (eds.) Monetary Policy and Inflation in Spain, MacMillan.
- Canzoneri, Mattew, Robert Cumby, and Behzad Diba, 2001, “Is the Price Level Determined by the Needs of Fiscal Solvency?” American Economic Review, Vol. 91, No. 5, pp. 1221-38.
- Canzoneri, Mattew, Robert Cumby, and Behzad Diba, ———2002, “Should the European Central Bank and the Federal Reserve be concerned about Fiscal Policy?” Mimeo.

### Emerging Markets, Sovereign Spreads, and Crisis Dynamics
- Abiad, Abdul, and Taimur Baig, 2005, “Underlying Factors Driving Fiscal Effort in Emerging Market Economies,” IMF Working Paper 05/106 (Washington: International Monetary Fund).
- Aktas, Zelal, Neslihan Kaya, and Ümit Özlale, 2005, “The Price Puzzle in Emerging Markets: Evidence from the Turkish Economy Using ‘Model Based’ Risk Premium Derived from Domestic Fundamentals,” Central Bank of the Republic of Turkey, Research Department Working Paper No. 05/02 (Ankara).
- Andritzky, Jochen R., Geoffrey J. Bannister, and Natalia T. Tamirisa, 2005, “The Impact of Macroeconomic Announcements on Emerging Market Bonds,” IMF Working Paper 05/83 (Washington: International Monetary Fund).
- Arora, Vivek, and Martin Cerisola, 2001, “How Does U.S. Monetary Policy Influence Sovereign Spreads in Emerging Markets?” Staff Papers, Vol. 48, No. 3, pp. 474–98 (Washington: International Monetary Fund).
- Cantor, Richard, and Frank Packer, 1996, “Determinants and Impact of Sovereign Credit Ratings,” Economic Policy Review, Federal Reserve Bank of New York, October, pp. 37–53.
- Cline, William R., and Kevin J.S. Barnes, 1997, “Spread and Risk in Emerging Markets Lending,” IIF Research Papers No. 97-1 (Washington: Institute of International Finance).
- Eichengreen, Barry, and Ashoka Mody, 1998, “What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?” NBER Working Paper No. 6408 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Emir, Olcay Y., Fatih Özatay, and Gülbin Şahinbeyoğlu, 2004, “High Public Debt and Effects of News on Interest Rates,” Central Bank of the Republic of Turkey Research Department, Working Paper No. 04/03.
- Emir, Olcay Y., Fatih Özatay, and Gülbin Şahinbeyoğlu, 2005, “Effects of US Interest Rates and News on the Daily Interest Rates of a Higly Indebted Emerging Country: Evidence from Turkey,” Central Bank of the Republic of Turkey Research Department Working Paper No. 05/08.
- Ferrucci, Gianluigi, 2003, “Empirical Determinants of Emerging Market Economies’ Sovereign Bond Spreads,” Bank of England Working Paper No. 205.
- Ganapolsky, Eduardo J.J., and Sergio L. Schmukler, 2001, “Crisis Management in Argentina during the 1994-1995 Mexican Crisis: How Did Markets React?” in Devarajan, S., Rogers, F., and Squire, L. (eds.) World Bank Economists’ Forum, No. 1, pp. 3–30.
- Kamin, Steven B., and Karsten von Kleist, 1999, “The Evolution and Determinants of Emerging Market Credit Spread in the 1990s,” BIS Working Paper No. 68, May, Basel, Bank for International Settlements.
- Kaminsky, Graciela, and Sergio L. Schmukler, 1999, “What Triggers Market Jitters? A Chronicle of the Asian Crises,” Journal of International Money and Finance, Vol. 18, pp. 537–60.
- Min, Hong G., 1998, “Determinants of Emerging Market Bond Spread: Do Economic Fundamentals Matter?” World Bank Policy Research Paper No. 1899.
- Uribe, Martin, and Vivian Z. Yue, 2003, “Country Spreads and Emerging Countries: Who Drives Whom?” NBER Working Paper No. 10018 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Zoli, Edda, 2004, “Credit Rationing in Emerging Economies’ Access to Global Capital Markets,” IMF Working Paper 04/70 (Washington: International Monetary Fund).
- Zoli, Edda, 2005, “How does Fiscal Policy affect Monetary Policy in Emerging Market Economies?” BIS Working Papers No. 174.
- Hemming, Richard, Michael Kell, and Axel Schimmelpfennig, 2003, “Fiscal Vulnerability and Financial Crises in Emerging Market Economies,” IMF Occasional Paper No. 218, (Washington D.C., International Monetary Fund).

### Public Debt, Deficits, Interest Rates, and Exchange Rates
- Auernheimer, Leonardo, and Benjamin Contreras, 1990, “Control of the Interest Rate with a Government Budget Constraint: Determinacy of the Price Level, and Other Results” (Unpublished; Texas: A&M University).
- Beck, Stacie E., 1993, “Ricardian Equivalence Proposition: Evidence from Foreign Exchange Markets,” Journal of International Money and Finance, Vol. 12 (May) pp. 154–69.
- Boothe, Paul M., and Bradford G. Reid, 1989, “Asset Returns and Government Budgets in a Small Open Economy,” Journal of Monetary Economics, 23 (1) pp. 65–77.
- Cline, William R., 1995, International Debt Reexamined, (Washington: Institute of International Finance).
- Cochrane, John, 1998, “A Frictionless View of US Inflation,” in B. Bernake, and J. Rotemberg (eds.), NBER Macroeconomics Annual, pp. 323–84.
- Cochrane, John, 2001, “Long-Term Debt and Optimal Policy in the Fiscal Theory of the Price Level,” Econometrica, Vol. 69, pp. 69–116.
- Correia, Isabel, Juan Pablo Nicolini, and Pedro Teles, 2003, “Optimal Fiscal and Monetary Policy,” Banco de Portugal Working Paper 3–03.
- Debelle, Guy, and Stanley Fischer, 1994, “How Independent should a Central Bank be?” in Goals, Guidelines, and Constraints Facing Monetary Policymakers, Federal Reserve Bank of Boston, Conference Series No. 38.
- Dell’ Ariccia, Giovanni, Isabel Schnebel, and Jeromin Zettelmeyer, 2002, “Moral Hazard and International Crisis Lending: A Test,” IMF Working Paper 02/181 (Washington: International Monetary Fund).
- Evans, Paul, 1985, “Do Large Deficits Produce High Interest Rates?” American Economic Review, 75 (1), pp. 68–87.
- Evans, Paul, 1987a, “Interest Rates and Expected Future Budget Deficits in the United States,” Journal of Political Economy, Vol. 95, No. 1, pp. 34–58.
- Evans, Paul, 1987b, “Do Budget Deficits raise Nominal Interest Rates? Evidence from Six Countries,” Journal of Monetary Economies, Vol. 20, No. 2, pp. 281–300.
- Favero, Carlo A., and Francesco Giavazzi, 2004, “Inflation Targeting and Debt: Lessons from Brazil,” NBER Working Paper No. 10390 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Feldstein, Martin S., 1986, “The Budget Deficit and the Dollar”, in S. Fischer (ed.) NBER Macroeconomics (Cambridge, Massachusetts: National Bureau of Economic Research.
- Ford, Robert, and Douglas Laxton, 1999, “World Public Debt and Real Interest Rate,” Oxford Review of Economic Policy, Vol. 15, No. 2, pp. 77–94.
- Fratianni, Michele and Franco Spinelli, 2001, “Fiscal Dominance and Money Growth in Italy: The Long Record,” Explorations in Economic History, 38, pp. 252–72.
- Melvin, Michael, Don Schlagenhauf, and Ayhan Talu, 1989, “U.S. Budget Deficits and the Foreign Exchange Value of the Dollar”, Review of Economics and Statistics, Vol. 71 (August) pp. 500–05.
- McMillin, W. Douglas, and Faik Koray, 1990, “Does Government Debt affect the Exchange Rate? An Empirical Analysis of the U.S. – Canadian Exchange Rate,” Journal of Economics and Business, Vol. 42, November, pp. 279–88.
- Koray, Faik, and Pingfai Chan, 1991, “Government Spending and the Exchange Rate,” Applied Economics, 23, September, pp. 1551–58.
- Wachtel, Paul, and John Young, 1987, “Deficit Announcements and Interest Rates,” American Economic Review, Vol. 77 No. 5, pp. 1007–12.
- Elmendorf, D., “The Effects of Deficit-Reduction Laws on Real Interest Rates,” Federal Reserve Board, Finance and Economics Discussion Series No. 1996–44.
- Ford, Robert, and Douglas Laxton, 1999, “World Public Debt and Real Interest Rate,” Oxford Review of Economic Policy, Vol. 15, No. 2, pp. 77–94.

### Empirical Methods, Announcements, and Market Responses
- Andritzky, Jochen R., Geoffrey J. Bannister, and Natalia T. Tamirisa, 2005, “The Impact of Macroeconomic Announcements on Emerging Market Bonds,” IMF Working Paper 05/83 (Washington: International Monetary Fund).
- Kamin, Steven B., and Karsten von Kleist, 1999, “The Evolution and Determinants of Emerging Market Credit Spread in the 1990s,” BIS Working Paper No. 68, May, Basel, Bank for International Settlements.
- Kitchen, John, 1996, “Domestic and International Financial Market Responses to Federal Deficit Announcements,” Journal of International Money and Finance, Vol. 15, No. 2, pp. 239-54.
- Pesaran, Hashem H., and Yongcheol Shin, 1998, “Generalized Impulse Response Analysis in Linear Multivariate Models”, Economics Letters, Vol. 58, pp. 17–29.
- Ganapolsky, Eduardo J.J., and Sergio L. Schmukler, 2001, “Crisis Management in Argentina during the 1994-1995 Mexican Crisis: How Did Markets React?” in Devarajan, S., Rogers, F., and Squire, L. (eds.) World Bank Economists’ Forum, No. 1, pp. 3–30.

### Institutional, Historical, and Policy Perspectives
- Agénor, P-R, and P.J. Montiel, 1996, Development Macroeconomics (Princeton, New Jersey: Princeton University Press).
- Buti, Marco, Werner Roeger, and Jan In’t Veld, 2002, “Monetary and Fiscal Policy Interactions under a Stability Pact” in Marco Buti, Jurgen von Hagen and Carlos Martinez-Mongay (eds.) The Behavior of Fiscal Authorities, Palgrave.
- Cushing, Matthew, 1999, “The Indeterminacy of Prices under Interest Rate Pegging: The Non-Ricardian Case,” Journal of Monetary Economics, Vol. 44, No. 1, pp. 131–48.
- Dixit, Avinash, and Luisa Lambertini, 2001, “Monetary-Fiscal Policy Interactions and Commitment versus Discretion in a Monetary Union,” European Economic Review, 45, pp. 977–87.
- Greenspan, Alan, 2004a, “Testimony of Chairman Alan Greenspan,” Economic outlook and current fiscal issues, Before the Committee on the Budget, U.S. House of Representatives.
- Greenspan, Alan, 2004b, “Testimony of Chairman Alan Greenspan,” Federal Reserve Board's semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives.
- Hicks, J. R., 1952, The Social Framework, (Oxford University Press).
- International Moneatary Fund, 2003, World Economic Outlook, September, (Washington D.C., International Monetary Fund).
- International Moneatary Fund, 2004, Global Financial Stability Report, April, (Washington D.C., International Monetary Fund).
- Loyo, Eduardo, 1999, “Tight Money Paradox on the Loose: A Fiscalist Hyperinflation,” mimeo, J.F. Kennedy School of Government, Harvard University.
- Rogoff, Kenneth, 2003, “Globalization and Global Disinflation,” Mimeo, International Monetary Fund.
- Sargent, Thomas, and Neil Wallace, 1981, “Some Unpleasant Monetarist Arithmetic,” Federal Reserve Bank of Minneapolis Quarterly Review, Fall, pp. 1–17.
- Tanner, Evan, and Alberto Ramos, 2002, “Fiscal Sustainability and Monetary versus Fiscal Dominance: Evidence from Brazil, 1991-2000,” IMF Working Paper 02/5 (Washington: International Monetary Fund).
- Wyplosz, Charles, 1999, “Economic Policy Coordination in EMU: Strategies and Institutions,” Mimeo.
- Fratianni, Michele and Franco Spinelli, 2001, “Fiscal Dominance and Money Growth in Italy: The Long Record,” Explorations in Economic History, 38, pp. 252–72.
- Hemming, Richard, Michael Kell, and Axel Schimmelpfennig, 2003, “Fiscal Vulnerability and Financial Crises in Emerging Market Economies,” IMF Occasional Paper No. 218, (Washington D.C., International Monetary Fund).

*References list as provided in the source PDF _wp06184 - References.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp06184.pdf_