Fiscal and Monetary Nexus in Emerging Market Economies: How Does Debt Matter?

Abstract

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 cross-section data. The results show that interest rate -inflation elasticity weakens with debt/GDP and external debt/GDP. Second, it utilizes highfrequency 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. JEL Classification Numbers: H63, H30, E5

Asymmetric and threshold effects of public debt on economic growth in SADC: a panel smooth transition regression analysis

“…This function is consistent with the Keynesian school of thought, which advocates for an active stabilisation role of government expenditure to advance economic growth and development. Vasishtha et al (2006) claimed that higher public debt may impede economic growth because government may formulate policies that may crowd-out private sector consumption to fulfil its own financial obligations. Figure 1 presents graphical trends for public debt to GDP ratio and GDP per capita from 2000 to 2018 for SADC members.…”