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How does fiscal policy affect monetary policy in emerging market countries?

Author: Edda Zoli; Bank for International Settlements. Monetary and Economic Department.
Publisher: Basel, Switzerland : Bank for International Settlements, Monetary and Economic Dept., ©2005.
Series: BIS working papers, no. 174.
Edition/Format:   Print book : EnglishView all editions and formats
Database:WorldCat
Summary:
"This paper analyses how fiscal policy affects monetary policy in emerging economies. First, it conducts a test for fiscal dominance, and finds that the evidence points clearly to a regime of fiscal dominance in the case of Argentina and Brazil during the 1990s and early 2000s, while for the other countries in the sample the results are mixed. Next, the paper evaluates whether monetary policy accommodates fiscal  Read more...
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Additional Physical Format: Online version:
Zoli, Edda.
How does fiscal policy affect monetary policy in emerging market countries?
Basel, Switzerland : Bank for International Settlements, Monetary and Economic Dept., ©2005
(OCoLC)761801183
Document Type: Book
All Authors / Contributors: Edda Zoli; Bank for International Settlements. Monetary and Economic Department.
OCLC Number: 59790495
Notes: "April 2005."
Description: v, 44 pages : illustrations ; 30 cm.
Series Title: BIS working papers, no. 174.
Responsibility: by Edda Zoli.

Abstract:

"This paper analyses how fiscal policy affects monetary policy in emerging economies. First, it conducts a test for fiscal dominance, and finds that the evidence points clearly to a regime of fiscal dominance in the case of Argentina and Brazil during the 1990s and early 2000s, while for the other countries in the sample the results are mixed. Next, the paper evaluates whether monetary policy accommodates fiscal policy, by assessing whether fiscal variables enter significantly in the central bank's reaction function. The findings indicate that in the emerging markets under consideration the conduct of monetary policy is not directly affected by changes in real primary balances. Then, the paper explores another mechanism through which fiscal policy could affect monetary policy in an emerging economy, by looking at the impact of fiscal policy on country premium and exchange rates. The empirical analysis is conducted through an event study, assessing the impact of news concerning fiscal variables and fiscal policy, on sovereign spread and exchange rate daily movements in Brazil, during the period surrounding the 2002 macroeconomic crisis. The results show that fiscal events have significantly influenced sovereign spreads and exchange rates in that period. Furthermore, fiscal policy actions appear to have contributed to movements in the exchange rates more than unanticipated monetary policy manoeuvres. The findings also suggest that, at that time, fiscal policy might have pushed the economy into an equilibrium in which increases in the policy intervention rate were likely to be associated with a depreciation, rather than an appreciation of the exchange rate."

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