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Working paper

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2008

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cc-by-nc-nd, (c) Claeys et al., 2008
Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/62325

Fiscal policy and interest rates: the role of financial and economic integration

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Abstract

It is commonly believed that a fiscal expansion raises interest rates. However, these crowding out effects of deficits have been found to be small or non-existent. One explanation is that financial integration offsets interest rate differentials on globalised bond markets. This paper measures the degree of integration of government bond markets, using spatial modelling techniques to take this spillover on financial markets into account. Our main finding is that the crowding out effect on domestic interest rates is significant, but is reduced by spillover across borders. This spillover is important in major crises or in periods of coordinated policy actions. This result is generally robust to various measures of cross-country linkages. We find spillover to be much stronger among EU countries.

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Política fiscal, Macroeconomia, Cicle de vida del producte, Deute públic, Anàlisi d'impacte econòmic, Inversions

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Fiscal policy, Macroeconomics, Product life cycle, Public debt, Economic impact analysis, Investments

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Documents de treball (Institut de Recerca en Economia Aplicada Regional i Pública (IREA))
Documents de treball / Informes (Econometria, Estadística i Economia Aplicada)

Citation

CLAEYS, Peter, MORENO SERRANO, Rosina and SURIÑACH CARALT, Jordi. Fiscal policy and interest rates: the role of financial and economic integration. IREA – Working Papers. 2008. Vol.  IR08/10. ISSN 2014-1254. [consulted: 10 of October of 2026]. Available at: https://hdl.handle.net/2445/62325

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