Pressure or Prudence? Tales of Market Pressure and Fiscal Adjustment

Salvatore Dell'Erba, Todd Mattina and Agustin Roitman

No 2013/170, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; market pressure; bear market; credit rating; monetary union; pressure episode; fiscal adjustment; fiscal consolidation; macro-fiscal fundamentals; OECD; advanced economies; market signal; market stress; timing of the market pressure event; quality of market signal; interest rate indicator; Fiscal stance; Long term interest rates; Global (search for similar items in EconPapers)
Pages: 40
Date: 2013-07-17
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Citations: View citations in EconPapers (7)

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