Fiscal policy and asset markets: A semiparametric analysis

Dennis Jansen, Qi Li, Zijun Wang and Jian Yang ()

Journal of Econometrics, 2008, vol. 147, issue 1, 141-150

Abstract: Using a flexible semiparametric varying coefficient model specification, this paper examines the role of fiscal policy on the US asset markets (stocks, corporate and treasury bonds). We consider two possible roles of fiscal deficits (or surpluses): as a separate direct information variable and as a (indirect) conditioning information variable indicating binding constraints on monetary policy actions. The results show that the impact of monetary policy on the stock market varies, depending on fiscal expansion or contraction. The impact of fiscal policy on corporate and treasury bond yields follow similar patterns as in the equity market. The results are consistent with the notion of strong interdependence between monetary and fiscal policies.

Keywords: Fiscal; deficits; Monetary; policy; Stock; market; Semiparametric; estimation (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:147:y:2008:i:1:p:141-150

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