Pressure or Prudence? Tales of Market Pressure and Fiscal Adjustment

By Salvatore Dell'Erba, Todd D. Mattina, Agustin Roitman

July 17, 2013

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Salvatore Dell'Erba, Todd D. Mattina, and Agustin Roitman. Pressure or Prudence? Tales of Market Pressure and Fiscal Adjustment, (USA: International Monetary Fund, 2013) accessed December 25, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We study whether multiyear fiscal adjustment plans in 17 OECD countries during 1980-2011 have been associated with market pressure. We find that only a third (34 percent) of the consolidations occurred under market pressure, suggesting that market pressure is important but not the main element associated with consolidation plans. Many adjustments under market pressure were also clustered around external shocks, and entailed larger median fiscal adjustments than other multiyear consolidations. In contrast, we find that virtually all multiyear consolidations aimed at reducing budget deficits occurred with initially weak macro-fiscal fundamentals.

Subject: Financial services, Fiscal consolidation, Fiscal policy, Fiscal stance, Long term interest rates, Public debt

Keywords: Advanced economies, Bear market, Credit rating, Fiscal adjustment, Fiscal consolidation, Fiscal stance, Global, Interest rate indicator, Long term interest rates, Macro-fiscal fundamentals, Market pressure, Market signal, Market stress, Monetary union, OECD, Pressure episode, Quality of market signal, Timing of the market pressure event, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/170
Stock No:

WPIEA2013170
ISBN:

9781484374054
ISSN:

1018-5941

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