We analyse the impact of fiscal policy on asset prices using a panel vector auto-regressive (PVAR) approach and quarterly data for ten industrialized countries. We find that positive fiscal shocks lead to a temporary fall in stock prices and a gradual and persistent decrease in housing prices. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding-out effects and the deterioration of credit conditions; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) a more persistent response of asset prices for countries with a lower degree of openness; (iv) a larger impact of fiscal policy on asset prices for small countries; (v) a close link between the responsiveness of asset prices to fiscal policy and the government’s size; (vi) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization; and (vii) significant fiscal multiplier effects in the context of severe housing busts. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances.

Agnello, L., & Sousa, R. (2013). Fiscal policy and asset prices. BULLETIN OF ECONOMIC RESEARCH, 65(2), 154-177 [10.1111/j.0307-3378.2011.00420.x].

Fiscal policy and asset prices

AGNELLO, Luca;
2013

Abstract

We analyse the impact of fiscal policy on asset prices using a panel vector auto-regressive (PVAR) approach and quarterly data for ten industrialized countries. We find that positive fiscal shocks lead to a temporary fall in stock prices and a gradual and persistent decrease in housing prices. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding-out effects and the deterioration of credit conditions; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) a more persistent response of asset prices for countries with a lower degree of openness; (iv) a larger impact of fiscal policy on asset prices for small countries; (v) a close link between the responsiveness of asset prices to fiscal policy and the government’s size; (vi) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization; and (vii) significant fiscal multiplier effects in the context of severe housing busts. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances.
Settore SECS-P/02 Politica Economica
Agnello, L., & Sousa, R. (2013). Fiscal policy and asset prices. BULLETIN OF ECONOMIC RESEARCH, 65(2), 154-177 [10.1111/j.0307-3378.2011.00420.x].
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10447/66146
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 39
  • ???jsp.display-item.citation.isi??? 28
social impact