Fiscal Retrenchment and Sovereign Risk

Felix Strobel

No 2015007, BDPEMS Working Papers from Berlin School of Economics

Abstract: How does sovereign risk affect the dynamic consequences of identified contractionary fiscal policy shocks? I apply a regime-switching SVAR on Italian data and find that in periods in which government bond yield spreads are high and volatile, fiscal multipliers are smaller than in the calm regime. This empirical finding supports theoretical arguments that associate fiscal distress with low fiscal multipliers. Creation Date: 2015-06-05

Keywords: Sovereign Risk; Fiscal Policy; Fiscal Multipliers (search for similar items in EconPapers)
JEL-codes: E62 H60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-mac
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