scholarly journals How diabolic is the sovereign-bank loop? The effects of post-default fiscal policies

2021 ◽  
pp. 1-34
Author(s):  
André Diniz ◽  
Bernardo Guimaraes
Keyword(s):  
Fiscal Policy ◽  
Government Spending ◽  
Sovereign Debt ◽  
Policy Issue ◽  
Fiscal Policies ◽  
Debt Restructuring ◽  
Balance Sheets ◽  
Lump Sum ◽  
Greek Economy ◽  
Key Policy

Abstract The deleterious effect of debt restructuring on banks’ balance sheets and, consequently, on the economy as a whole has been a key policy issue. This paper studies how post-default fiscal policy interacts with this sovereign-bank loop and shape the response of a model economy. Calibration of the model matches characteristics of the Greek economy at the time of the bond exchange. Debt restructuring in place of higher lump-sum taxation or lower nonproductive government spending harms the economy even if no other cost of default is considered. However, the sovereign-debt loop is less costly to the economy than increases in labor or capital taxes to service debt. Even so, if fiscal policy is too responsive, a crowding-out effect inhibits the recovery of capital markets, hence a more conservative fiscal stance is desirable. Thus, how diabolic the post-default sovereign-bank loop is depends to a large extent on the way fiscal policy responds.

Paper Money

2013 ◽  
Vol 103 (2) ◽  
pp. 563-584 ◽  
Author(s):  
Christopher A Sims
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Central Bank ◽  
Sovereign Debt ◽  
Price Level ◽  
Balance Sheets ◽  
Policy Interactions ◽  
Paper Money ◽  
Bank Balance Sheets

Drastic changes in central bank operations and monetary institutions in recent years have made previously standard approaches to explaining the determination of the price level obsolete. Recent expansions of central bank balance sheets and of the levels of richcountry sovereign debt, as well as the evolving political economy of the European Monetary Union, have made it clear that fiscal policy and monetary policy are intertwined. Our thinking and teaching about inflation, monetary policy, and fiscal policy should be based on models that recognize fiscal-monetary policy interactions. (JEL E31, E52, E58, E62, H63)

The Politics That the Euro Needs

2017 ◽  
Author(s):  
Martin Sandbu
Keyword(s):  
Sovereign Debt ◽  
Balance Of Payments ◽  
The Political ◽  
Fiscal Policies ◽  
Debt Restructuring ◽  
Control Paradigm ◽  
National Autonomy ◽  
Debt Issuance ◽  
The Cost

This chapter reflects on the political imperative of establishing a coalition among eurozone countries and institutions that can achieve the economic goals listed in the previous chapter and articulates an alternative to the transfers-for-centralised-control paradigm that is driving voters to political extremes. There is one alternative which it has been claimed does not exist: greater national autonomy to pursue countercyclical fiscal policies combined with a framework for orderly sovereign debt restructuring; a eurozone fiscal framework that prioritises the collective fiscal stance; and mutualised debt issuance by a coalition of the willing. Such an alternative, if it had been pursued early in the crisis, would have addressed the balance-of-payments vulnerability of weaker euro members, reduced the cost of stagnation by requiring less austerity, and avoided the strain that the ‘no alternative’ rhetoric has inflicted on Europe's democracies.

scholarly journals Monetary-Fiscal Policy Interactions and Indeterminacy in Postwar US Data

2012 ◽  
Vol 102 (3) ◽  
pp. 173-178 ◽  
Author(s):  
Saroj Bhattarai ◽  
Jae Won Lee ◽  
Woong Yong Park
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Fiscal Policies ◽  
Inference Method ◽  
Policy Regime ◽  
Policy Interactions ◽  
Lump Sum ◽  
Equilibrium Indeterminacy ◽  
Monetary Models ◽  
Policy Shifts

Using a micro-founded model and a likelihood-based inference method, we show that while a passive monetary and passive fiscal policy regime prevailed in the U.S. before Paul Volcker's chairmanship at the Federal Reserve, an active monetary and passive fiscal policy regime prevailed after his appointment. Since both monetary and fiscal policies were passive pre-Volcker, equilibrium indeterminacy was a feature of the economy. Finally, pre-Volcker, the effects of unanticipated policy shifts were substantially different from those predicted by conventional monetary models: unanticipated increases in interest rates increased inflation and output, while unanticipated increases in lump-sum taxes decreased inflation and output.

scholarly journals Fiscal performance in monetary unions: How much austerity should be allowed?

2017 ◽  
Vol 64 (1) ◽  
pp. 61-76 ◽  
Author(s):  
Carmen Díaz-Roldán
Keyword(s):  
Fiscal Policy ◽  
Central Bank ◽  
Sovereign Debt ◽  
Initial Level ◽  
Debt Crisis ◽  
Fiscal Rules ◽  
Fiscal Policies ◽  
Fiscal Consolidation ◽  
Monetary Unions ◽  
Fiscal Discipline

The effectiveness of fiscal policy becomes particularly relevant in the case of the member countries of a monetary union facing a sovereign debt crisis. In that environment, fiscal policy is constrained by the need to carry out fiscal consolidation and reduce debt levels. For that reason and with the purpose of anchoring fiscal discipline, the adoption of fiscal rules has become a central issue. In this paper we will analyse the management of fiscal policies in monetary unions, when the central bank and the fiscal authorities follow policy rules. The results are related to the conservativeness of the central bank, the degree of austerity of the fiscal authorities and the initial level of public debt.

Evaluation of Fiscal Policy Effect of China’s Photovoltaic Industry

2018 ◽  
pp. 111-116 ◽  
Author(s):  
Gang AN ◽  
Hang WANG
Keyword(s):  
Fiscal Policy ◽  
Research And Development ◽  
Operating Performance ◽  
Fiscal Policies ◽  
Micro Data ◽  
Policy Effect ◽  
Policy Suggestions ◽  
Asset Size ◽  
The Empirical Analysis

To explore the role of fiscal policies in promoting the development of photovoltaic industry, the effects of financial subsidies on the development of China’s photovoltaic industry were analyzed by using the micro data of listed companies. The empirical analysis results in this study indicate that the fiscal policies represented by financial subsidies play a remarkable positive impetus function and financial subsidies are positively correlated with the operating performance of Photovoltaic enterprises. With larger the asset size and higher the Research and Development (R&D) investments, the operating performance of Photovoltaic enterprises is the better. Based on the above results, this study puts forward some policy suggestions on optimizing fiscal policy tools and further promoting the development of photovoltaic industry.

Jurisdiction and Cognate Matters

2018 ◽  
Author(s):  
Hayk Kupelyants
Keyword(s):  
Sovereign Debt ◽  
English Court ◽  
Debt Restructuring ◽  
International Jurisdiction ◽  
Class Actions ◽  
Brussels Regulation

Chapter 3 examines the international jurisdiction in sovereign debt disputes and particularly the following matters: service of proceedings; the jurisdiction under the Brussels Regulation, the jurisdiction under English national rules; individual standing of beneficial bondholders; class actions. The chapter also examines the issue of pre-emptive strikes in sovereign debt litigation, in other words whether private creditors may initiate legal actions before the conclusion of the sovereign debt restructuring and how courts may constrain such litigation. The chapter argues that the English courts may stay proceedings if they are brought in contravention of the powers of bondholders under majority action clauses. The chapter lastly addresses the issue of whether the majority may modify the bonds after the English court has issued a judgment.

Risk Management Optimization for Sovereign Debt Restructuring

2015 ◽  
Vol 6 (2) ◽  
Author(s):  
Andrea Consiglio ◽  
Stavros A. Zenios
Keyword(s):  
Risk Management ◽  
Scenario Analysis ◽  
Sovereign Debt ◽  
Risk Measure ◽  
Policy Tools ◽  
Debt Restructuring ◽  
Tail Risk ◽  
Debt Sustainability ◽  
Scenario Optimization ◽  
Management Optimization

AbstractDebt restructuring is one of the policy tools available for resolving sovereign debt crises and, while unorthodox, it is not uncommon. We propose a scenario analysis for debt sustainability and integrate it with scenario optimization for risk management in restructuring sovereign debt. The scenario dynamics of debt-to-GDP ratio are used to define a tail risk measure, termed

Government spending shocks and economic growth: additional evidence from cyclical behavior of fiscal policy

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Olumide Olusegun Olaoye ◽  
Ukafor Ukafor Okorie ◽  
Oluwatosin Odunayo Eluwole ◽  
Mahmood Butt Fawwad
Keyword(s):  
Economic Growth ◽  
Business Cycle ◽  
Government Spending ◽  
Generalized Method Of Moments ◽  
The State ◽  
Fiscal Policies ◽  
Asymmetric Effect ◽  
Content Type ◽  
Spending Shocks ◽  
The Business Cycle

PurposeThis study examines the asymmetric effect of government spending on economic growth in Nigeria over the period 1980–2017. Specifically, this study investigates whether the response of economic growth to government spending shocks differs according to the nature of shocks on them. In addition, the authors examine whether the stabilizing effects of fiscal policies are dependent on the state of the business cycle.Design/methodology/approachThe study adopts the linear fiscal reaction function in addition to the nonlinear regression model of Hatemi-J (2011, 2012), Granger and Yoon (2002), which allows us to separate negative shocks from positive shocks to government spending. Similarly, the authors adopt the generalized method of moments (GMM) techniques of Hansen (1982) to account for simultaneity and endogeneity problems inherent in dynamic model.FindingsThe authors’ findings reveal that there is evidence of asymmetry in the government spending–economic growth nexus in Nigeria over the period of study. Specifically, the authors find that the response of economic growth to government spending shocks differs according to the nature of shocks on them. More specifically, the study established that the stabilizing effects of fiscal policies are dependent on the state of the business cycle.Originality/valueUnlike the traditional method of modeling asymmetry, which adopts the simple inclusion of a squared government spending term or by the inclusion of a cubic government spending term, the model adopted in this study allows us to model shocks and show how the responses of economic growth to government expenditure differ according to the nature of shocks on them.

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