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Fiscal and Monetary Nexus in Emerging Market Economies: How Does Debt Matter?
Author:
Ms. Garima Vasishtha
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,
Mr. Taimur Baig
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,
Mr. Manmohan S. Kumar
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, and
Ms. Edda Zoli
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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 184
Language:
English
Publication Date:
01 Aug 2006
DOI:
https://doi.org/10.5089/9781451864441.001
ISBN:
9781451864441
ISSN:
1018-5941
Pages:
43
Keywords:
WP; price level; government; monetary policy
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper examines two main aspects of the interaction between fiscal and monetary policy in emerging market economies. First, it explores the interest rate-inflation relationship in economies with different levels of external and domestic public debt using panel- and crosssection data. The results show that interest rate-inflation elasticity weakens with debt/GDP and external debt/GDP. Second, it utilizes high-frequency data from Brazil, Turkey, and Poland to examine how market-determined variables react to economic news. The results suggest that when vulnerabilities are high, budget news has the most significant impact on country spreads and interest rates, and the impact of monetary policy is weakened.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund