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Euro Area Periphery Countries' Fiscal Policy and Monetary Policy Surprises

Oliver Hülsewig and Horst Rottmann ()

No 8041, CESifo Working Paper Series from CESifo

Abstract: In this study, we explore how fiscal policy in euro area periphery countries responds to monetary policy surprises that lower sovereign bond yields. In particular, we assess whether the disciplining effect of financial markets on public finances is undermined by the ability of monetary policy to affect the conditions of external funds. Using Jordà’s (2005) local projection method we find that fiscal discipline, on average, does not wane in response to monetary policy innovations that bring down yields on sovereign bonds. The reaction of economic activity to shocks to monetary policy appears to determine the fiscal stance, rather than the adjustment of borrowing cost.

Keywords: Euro area periphery countries; fiscal policy; market discipline; monetary policy shocks; local projections (search for similar items in EconPapers)
JEL-codes: E52 E62 H62 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Journal Article: Euro Area Periphery Countries' Fiscal Policy and Monetary Policy Surprises (2022) Downloads
Working Paper: Euro area periphery countries' fiscal policy and monetary policy surprises (2021) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8041

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