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Fiscal policy and stock market returns volatility: the case of Indonesia

Author

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  • Haryo Kuncoro

Abstract

This paper separately studies the impact of different kind of fiscal policy on the stock return stabilisation in the case of Indonesia. Using quarterly data over the period 2001-2013, we obtained that the discretionary and automatic stabilisation fiscal policy tend to induce the stock returns volatility. While the credible debt rule policy leads to decrease the volatility of stock returns, the deficit rule policy is found to be non-credible and does not have any effect. Accordingly, the lower ratio of government expenditure to GDP along with improving commitment tightly to the planned deficit ratio is a good signal for stabilising financial market.

Suggested Citation

  • Haryo Kuncoro, 2017. "Fiscal policy and stock market returns volatility: the case of Indonesia," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 10(2), pages 153-170.
    • Handle: RePEc:ids:ijepee:v:10:y:2017:i:2:p:153-170
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    Citations

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    Cited by:

    1. Gabriel Caldas Montes & Iven Silva Valpassos, 2018. "Discretionary fiscal policy and sovereign risk," Economics Bulletin, AccessEcon, vol. 38(3), pages 1343-1365.
    2. Michael Anthony Adams, 2020. "Fiscal Policy and Stock Market Efficiency in the USA: An ARDL Bounds Testing Approach," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 9(2), pages 73-81.
    3. Montes, Gabriel Caldas & Souza, Ivan, 2020. "Sovereign default risk, debt uncertainty and fiscal credibility: The case of Brazil," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    4. Uhunmwangho, Monday, 2022. "Determinants of Stock Market Volatility in Africa," African Journal of Economic Review, African Journal of Economic Review, vol. 10(2), March.

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