Sudden Stops, Sovereign Risk, and Fiscal Rules
This paper studies the effect of implementing fiscal rules on sovereign default risk and on the probability of large capital ow reversals for a large sample of countries including both developed and emerging market economies. Results indicate that fiscal rules are beneficial for macroeconomic stability, as they significantly reduce both sovereign risk perception and the probability of a sudden stop in countries that implement them. These results, which are robust to various empirical specifications, have important policy implications specially for countries that have relaxed their fiscal rules in response to the Covid-19 pandemic.
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| Language: | English |
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Inter-American Development Bank
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| Subjects: | Sovereign Default, Sudden Stop, Fiscal Rule, Capital Flow, Gross Domestic Product, Economic Stabilization, F34 - International Lending and Debt Problems, G15 - International Financial Markets, C33 - Panel Data Models • Spatio-temporal Models, Fiscal Rules;Sudden stops;sovereign default risk;dynamic heterogeneous panel data models, |
| Online Access: | http://dx.doi.org/10.18235/0003146 https://publications.iadb.org/en/sudden-stops-sovereign-risk-and-fiscal-rules |
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