HOW DO FISCAL CONSOLIDATION AND FISCAL STIMULI IMPACT ON THE SYNCHRONIZATION OF BUSINESS CYCLES?

Using quarterly data for a panel of advanced economies, we show that synchronized fiscal consolidation (stimulus) programmes in different countries make their business cycles more closely linked. We also find: (i) some evidence of decoupling when an inflation targeting regime is unilaterally adopted; (ii) an increase in business cycle synchronization when countries fix their exchange rates and become members of a monetary union; (iii) a positive effect of bilateral trade on the synchronization of business cycles. Global factors, such as a rise in global risk aversion and uncertainty and a reversal of nonstandard expansionary monetary policy, can also reduce the degree of co‐movement of business cycles across countries. From a policy perspective, our work shows that an inflation targeting regime coupled with simultaneous fiscal consolidations can lead to more business cycle synchronization.     

Booms and busts in housing markets: Determinants and implications

This study looks at the characteristics and determinants of booms and busts in housing prices for a sample of eighteen industrialised countries over the period 1980–2007. From an historical perspective, we find that recent housing booms have been amongst the longest in the past four decades. Estimates of a Multinomial Probit model suggest that domestic credit and interest rates have a significant influence on the probability of booms and busts occurring. Moreover, international liquidity plays a significant role for the occurrence of housing booms and—in conjunction with banking crises—for busts. We also find that the deregulation of financial markets has strongly magnified the impact of the domestic financial sector on the occurrence of booms.     

Political,Institutional, and Economic Factors Underlying Deficit Volatility

It is well known that fiscal policy can counter‐cyclically smooth out the effect of unexpected shocks and public deficit volatility may reflect the (optimal) policy response to them. However, the welfare losses associated to fiscal instability are also an important challenge for many countries, as it typically implies an inefficient allocation of resources, higher sovereign risk premium and an inadequate provision of public services. In this paper, we empirically analyze the political, institutional, and economic sources of public deficit volatility. Using the system‐generalized method‐of‐moments (GMM) estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper‐inflation episodes and for countries with a high degree of openness.     

Fiscal adjustments,labour market flexibility and unemployment

Using a panel of 17 countries for 1978–2009, we find that tax-driven consolidations increase unemployment by 0.25 percentage points. Labour market flexibility mitigates this: a one-point rise in the flexibility index reduces youth (long-term) unemployment by 0.6–0.7 (1.8–2.2) percentage points.     

FISCAL POLICY AND ASSET PRICES

We analyse the impact of fiscal policy on asset prices using a panel vector auto‐regressive (PVAR) approach and quarterly data for ten industrialized countries. We find that positive fiscal shocks lead to a temporary fall in stock prices and a gradual and persistent decrease in housing prices. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding‐out effects and the deterioration of credit conditions; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) a more persistent response of asset prices for countries with a lower degree of openness; (iv) a larger impact of fiscal policy on asset prices for small countries; (v) a close link between the responsiveness of asset prices to fiscal policy and the government’s size; (vi) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization; and (vii) significant fiscal multiplier effects in the context of severe housing busts. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances.     

The Housing Cycle: What Role for Mortgage Market Development and Housing Finance?

The Journal of Real Estate Finance and Economics - We use duration analysis to assess the impact of securitization, mortgage sector liberalization and government involvement in housing finance on...     

Financial stress and sovereign debt composition

Using a panel of 13 advanced economies for the period 1980–2012, we find that periods of impaired financial intermediation mainly accrue to maturity mismatches in sovereign debt. Thus, a higher (lower) share of short-term (medium and long-term) debt leads to an increase in the financial stress index. From a policy perspective, our work suggests that debt management policies translated into longer average maturities of sovereign debt not only reduce the expected debt servicing cost, but also mitigate strains in the financial sector.     

The Determinants of the Volatility of Fiscal Policy Discretion

This paper investigates the determinants of the volatility of fiscal policy discretion. Using a linear dynamic panel data model for 113 countries from 1980 to 2006 and a system‐GMM estimator, we find that an increase in the number of episodes of government crisis, less democracy and presidentialist systems raise the volatility of the discretionary component of fiscal policy. Additionally, we show that countries with larger populations and less flexible exchange rate systems are more insured against uncertainty about the conduct of fiscal policy. Our results are robust to various regional dummy variables, different subsets of countries and the presence of high inflation and crisis episodes.     

How Does Fiscal Consolidation Impact on Income Inequality?

In this paper, we assess the impact of fiscal consolidation on income inequality. Using a panel of 18 industrialized countries from 1978 to 2009, we find that income inequality significantly rises during periods of fiscal consolidation. In addition, while fiscal policy that is driven by spending cuts seems to be detrimental for income distribution, tax hikes seem to have an equalizing effect. We also show that the size of the fiscal consolidation program (in percentage of GDP) has an impact on income inequality. In particular, when consolidation plans represent a small share of GDP, the income gap widens, suggesting that the burden associated with the effort affects disproportionately households at the bottom of the income distribution. Considering the linkages between banking crises and fiscal consolidation, we find that the effect on the income gap is amplified when fiscal adjustments take place after the resolution of such financial turmoil. Similarly, fiscal consolidation programs combined with inflation are likely to increase inequality and the effects of fiscal adjustments on inequality are amplified during periods of relatively low growth. Our results also provide support for a non‐linear relationship between inequality and income and corroborate the idea that trade can promote a more equal distribution of income.     

Ethical Decision Making and The Law

This paper will examine the effects of gender, age, work experience, academic status and legality on certain ethical decisions. Six scenarios representing ethical dilemmas were presented to both undergraduate and MBA students in an attempt to determine if various demographic factors influenced ethical decision making. While some past studies have suggested that gender has an important effect on ethical decision making, this study does not completely support this conclusion and suggests that age and/or length of work experience should be included in any study of ethical decision making.The legality of the decisions was determined and compared to the reason given by the students for their decisions. In some cases the choice made by a majority of the students was not the one that was supported by the legal authorities which suggests that there may be conflicts between the ethical system of the respondents and the behavior expected of them by society.