Policy Mix and Debt Sustainability: Evidence from Fiscal Policy Rules
License
Access Rights
Cadmus Permanent Link
Full-text via DOI
ISBN
ISSN
Issue Date
Type of Publication
Keyword(s)
LC Subject Heading
Other Topic(s)
EUI Research Cluster(s)
Initial version
Published version
Succeeding version
Preceding version
Published version part
Earlier different version
Initial format
Author(s)
Citation
Empirica, 2006, 33, 2/3, 89-112
Cite
CLAEYS, Peter Gunther Antoon, Policy Mix and Debt Sustainability: Evidence from Fiscal Policy Rules, Empirica, 2006, 33, 2/3, 89-112 - https://hdl.handle.net/1814/6304
Abstract
This paper characterizes rules-based fiscal policy setting for G-3 and large
EMS countries. We set up a simple fiscal policy rule and then infer on the policymakers’
reaction coefficients by testing with GMM. Our results qualify existing
evidence on systematic fiscal policy in two respects. First, fiscal policy usually stabilizes
public debt; and there is indeed substantial interaction between fiscal and
monetary policies via the policy mix or the debt channel. Second, sustainability is
achieved with a ‘‘stop–go’’ cycle of consolidation. Unless debt ratios are high,
consolidation does not come at the cost of less cyclical stabilization