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Assessing fiscal policy through the lens of the financial and the commodity price cycles

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Listed:
  • Enrique Alberola-Ila
  • Ricardo Sousa

Abstract

We assess the link between fiscal policy and credit and commodity price booms and busts. We do so by investigating the impact of financial and commodity price cycles on the identification of episodes of fiscal consolidation and stimulus and the size of the fiscal impulse. We find that controlling for the credit cycle has an impact on the magnitude of the change in the cyclically-adjusted budget balance. The impact is lower in the case of the commodity price cycle. In addition, we show that credit booms and busts influence the cyclicality of fiscal policy, but not to the extent of significantly altering the systematic response of fiscal policy to the dynamics of real economic activity. Again, the impact of the commodity price cycle is smaller and limited to some specific cases.

Suggested Citation

  • Enrique Alberola-Ila & Ricardo Sousa, 2017. "Assessing fiscal policy through the lens of the financial and the commodity price cycles," BIS Working Papers 638, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:638
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    References listed on IDEAS

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    Cited by:

    1. Botta, Alberto & Porcile, Gabriel & Spinola, Danilo & Yajima, Giuliano Toshiro, 2023. "Financial integration, productive development and fiscal policy space in developing countries," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 175-188.
    2. Agnello, Luca & Castro, Vítor & Hammoudeh, Shawkat & Sousa, Ricardo M., 2020. "Global factors, uncertainty, weather conditions and energy prices: On the drivers of the duration of commodity price cycle phases," Energy Economics, Elsevier, vol. 90(C).
    3. Botta, Alberto & Spinola, Danilo & Yajima, Giuliano & Porcile, Gabriel, 2023. "Pasinetti, Debt Sustainability and (Green) Structural Change at the Time of Global Finance: An Emerging and Developing Countries’ Perspective," CAFE Working Papers 25, Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University.
    4. Woldu, Gabriel Temesgen & Szakálné Kanó, Izabella, 2023. "Macroeconomic effects of fiscal consolidation on economic activity in SSA countries," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    5. Siklos, Pierre L., 2021. "The macroeconomic response to real and financial factors, commodity prices, and monetary policy: International evidence," Economic Systems, Elsevier, vol. 45(1).
    6. Tobignaré Yabré & Gervasio Semedo, 2021. "Political stability and fiscal consolidation in sub‐Saharan African countries," The World Economy, Wiley Blackwell, vol. 44(4), pages 1077-1109, April.
    7. Butmalai Valentina & Săracu Alina-Florentina & Susanu Irina & Abedin Bahareh, 2024. "Forced Fiscal Regulation: Impact Factors and Efficiency," Valahian Journal of Economic Studies, Sciendo, vol. 15(1), pages 27-38.

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    More about this item

    Keywords

    fiscal policy; financial cycles; commodity price cycles; fiscal impulse; fiscal consolidation; fiscal stimulus; cyclicality;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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