Do Sound Public Finances Require Fiscal Rules Or Is Market Pressure Enough?
Research output: Working paper
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Do Sound Public Finances Require Fiscal Rules Or Is Market Pressure Enough? / Bergman, Ulf Michael; Hutchison, Michael; Jensen, Svend E. Hougaard.
The European Commission, 2013.Research output: Working paper
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TY - UNPB
T1 - Do Sound Public Finances Require Fiscal Rules Or Is Market Pressure Enough?
AU - Bergman, Ulf Michael
AU - Hutchison, Michael
AU - Jensen, Svend E. Hougaard
N1 - JEL codes: E62, F36, F44, G14, H63
PY - 2013
Y1 - 2013
N2 - This paper discusses the balance between market pressure and fiscal rules in order to keep public finances on a sustainable path. We provide empirical evidence on market assessments of sovereign default risk to economic news, announcements of national austerity programs, EU programs designed to support government finances, and banking fragility emanating from several countries in the euro area affected by the European sovereign debt crisis. We find that, in general, the quality of market signals is an insufficient indicator alone to accurately guide the conduct of fiscal policy, particularly during the crisis period. Therefore, market signals should be used to complement fiscal rules rather than serving as a substitute.
AB - This paper discusses the balance between market pressure and fiscal rules in order to keep public finances on a sustainable path. We provide empirical evidence on market assessments of sovereign default risk to economic news, announcements of national austerity programs, EU programs designed to support government finances, and banking fragility emanating from several countries in the euro area affected by the European sovereign debt crisis. We find that, in general, the quality of market signals is an insufficient indicator alone to accurately guide the conduct of fiscal policy, particularly during the crisis period. Therefore, market signals should be used to complement fiscal rules rather than serving as a substitute.
KW - Faculty of Social Sciences
KW - Euro area
KW - transmission of news
KW - financial markets
KW - fiscal rules
KW - sovereign debt
M3 - Working paper
SN - 9789279285714
T3 - Economic Papers
BT - Do Sound Public Finances Require Fiscal Rules Or Is Market Pressure Enough?
PB - The European Commission
ER -
ID: 50911461