Pressure or Prudence? Tales of Market Pressure and Fiscal Adjustment
July 17, 2013
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Summary
We study whether multiyear fiscal adjustment plans in 17 OECD countries during 1980-2011 have been associated with market pressure. We find that only a third (34 percent) of the consolidations occurred under market pressure, suggesting that market pressure is important but not the main element associated with consolidation plans. Many adjustments under market pressure were also clustered around external shocks, and entailed larger median fiscal adjustments than other multiyear consolidations. In contrast, we find that virtually all multiyear consolidations aimed at reducing budget deficits occurred with initially weak macro-fiscal fundamentals.
Subject: Financial services, Fiscal consolidation, Fiscal policy, Fiscal stance, Long term interest rates, Public debt
Keywords: advanced economies, bear market, credit rating, fiscal adjustment, fiscal consolidation, Fiscal stance, Global, interest rate indicator, Long term interest rates, macro-fiscal fundamentals, market pressure, market signal, market stress, monetary union, OECD, pressure episode, quality of market signal, timing of the market pressure event, WP
Pages:
40
Volume:
2013
DOI:
Issue:
170
Series:
Working Paper No. 2013/170
Stock No:
WPIEA2013170
ISBN:
9781484374054
ISSN:
1018-5941
