FISCAL ADJUSTMENTS AND ASSET PRICE MOVEMENTS
Bank of Greece
This paper examines the links between asset price movements and fiscal adjustments. Our findings suggest that a pick up in asset prices increases the probability of initiating a fiscal adjustment, but it does not necessarily lead to a sustainable correction of fiscal imbalances. However, higher real equity prices increase the probability of success.
Keywords: Asset prices; fiscal adjustments.
JEL classification: E61, E62, H61, H62, E32
Acknowledgements: I would like to thank the Bank of International Settlements for kindly providing the asset price data. I would also like to thank Christos Antonopoulos, Fragiskos Archontakis, Claudio Borio, Heather Gibson, Panagiotis Konstantinou, Pantelis Tagkalakis, Joel Slemrod and Jose Tavares. The views of the paper do not necessarily reflect those of the Bank of Greece.
Economic Research Department,
Bank of Greece, 21 E. Venizelos Ave.,
10250, Athens, Greece