FISCAL POLICY AND ASSET PRICES
By Luca Agnello, Ricardo M. Sousa. 2013
113 citations recorded by the source corpus.
We assess the role played by fiscal policy in explaining the dynamics of asset markets. Using a panel of ten industrialized countries, we show that a positive fiscal shock has a negative impact in both stock and housing prices. However, while stock prices immediately adjust to the shock and the effect of fiscal policy is temporary, housing prices gradually and persistently fall. As a result, the attempts of fiscal policy to mitigate stock price developments may severely de-stabilize housing markets. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding-out effects; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) significant fiscal multiplier effects in the context of severe housing busts; and (iv) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/4917693baf4e6a1b0032010c23fe26d3e00f592a
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In Economics and Econometrics
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Citations in the corpus
- Are Islamic finance innovations enough for investors to escape from a financial downturn? Further evidence from portfolio simulations (2013, background): “…Economics ISSN 0003–6846 print/ISSN 1466–4283 online 2013 Taylor & Francis 3412 http://www.tandfonline.com http://dx.doi.org/10.1080/00036846.2012.707776 significant rise in unemployment (Shiller, 2008; Afonso and Sousa, 2011, 2012; Agnello and Sousa, 2011, 2012; Agnello et al., 2012).”
- Stock market response to monetary and fiscal policy shocks: Multi-country evidence (2013, unknown): “, 1999; Fama and French, 1989; Gali and Gertler, 2007; Gertler and Gilchrist, 1993; Jensen and Johnson, 1995; Patelis, 1997; Thorbecke, 1997), only few investigate the effects of fiscal policy on stock markets (see, for example, Afonso and Sousa, 2011, 2012; Agnello and Sousa, 2010; Darrat, 1988; Ja”