Fiscal Policy and Asset Markets: A Semiparametric Analysis

26 Pages Posted: 27 Nov 2007

See all articles by Dennis W. Jansen

Dennis W. Jansen

Texas A&M University - Department of Economics

Qi Li

Texas A&M University - Department of Economics

Zijun Wang

Texas A&M University

Jian Yang

University of Colorado at Denver - Business School

Abstract

Using a flexible semiparametric varying coefficient model specification, this paper examines the role of fiscal policy on the U.S. asset markets (stocks, corporate and treasury bonds). We consider two possible roles of fiscal deficits (or surpluses): as a separate direct information variable and as a (indirect) conditioning information variable indicating binding constraints on monetary policy actions. The results show that the impact of monetary policy on the stock market varies, depending on fiscal expansion or contraction. The impact of fiscal policy on corporate and treasury bond yields follow similar patterns as in the equity market. The results are consistent with the notion of strong interdependence between monetary and fiscal policies.

Keywords: fiscal deficits, monetary policy, stock market, semiparametric estimation

JEL Classification: C1, C5, G1

Suggested Citation

Jansen, Dennis W. and Li, Qi and Wang, Zijun and Yang, Jian, Fiscal Policy and Asset Markets: A Semiparametric Analysis. Journal of Econometrics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1032344

Dennis W. Jansen

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States
409-845-7358 (Phone)
409-847-8757 (Fax)

Qi Li

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States
979-845-7349 (Phone)

Zijun Wang

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

Jian Yang (Contact Author)

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
178
Abstract Views
1,220
rank
180,687
PlumX Metrics