Interest Rate and Fiscal Balance Co-Movements: A Global Perspective
Posted: 29 Dec 2016
Date Written: January 10, 2012
In this paper we investigate whether there is a global and dynamic linkage between Monetary and Fiscal Policy in a global framework by using GVAR technique. Our results confirm that there is a significant connection between long-term nominal interest rate and fiscal balance in some industrial economies. We find while a global common factor is observed for interest rate among major economies, there is no such a global trend for fiscal balance. Furthermore, a negative fiscal balance shock in U.S. influences both long and short run interest rate and other core macroeconomic variables, significantly.
Keywords: Interest Rate, Fiscal Balance, Common Global Factor, GVAR
JEL Classification: E470, H690, C510, C520, C530
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