Vortrag
The Signalling Role of Fiscal Austerity

Anna Gibert


31st Annual Congress of the European Economic Association : EEA 2016
Genf, Schweiz, 22.08.2016 - 26.08.2016


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Abstract:
I build a model where creditworthy countries use fiscal austerity to communicate their ability to repay sovereign debt. I show that the signalling channel is active only for high levels of asymmetric information. The model generates ceteris paribus a negative association between the amount of public information (provided by the rating agencies) and fiscal tightness. Informed by the model predictions, I run panel data regressions on 58 OECD and emerging market economies since 1980 and find evidence of the signalling channel.

Abstract

I build a model where creditworthy countries use fiscal austerity to communicate their ability to repay sovereign debt. I show that the signalling channel is active only for high levels of asymmetric information. The model generates ceteris paribus a negative association between the amount of public information (provided by the rating agencies) and fiscal tightness. Informed by the model predictions, I run panel data regressions on 58 OECD and emerging market economies since 1980 and find evidence of the signalling channel.

Anna Gibert

Wissenschaftliche Mitarbeiterin in der Abteilung Makroökonomie



JEL-Classification: C32
Keywords: signalling, fiscal austerity, sovereign debt, credit ratings
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