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Using daily data over the period August 5, 2013 - September 27, 2019, this study investigates the dynamic spillovers between international monetary policies across four major economies (i.e. Eurozone, Japan, UK and US) and three key cryptocurrencies (i.e. Bitcoin, Litecoin and Ripple). In doing so, we apply a Time-Varying Parameter Vector Auto-Regression (TVP-VAR) model, a dynamic connectedness approach and network analysis. The empirical results indicate that cryptocurrency returns and monetary policy spillovers were particularly large when shadow policy rates became negative, moderated during the Fed's "tapering process", and sharpened again more recently as cryptocurrency buoyancy returned. Gross directional spillovers suggest that shadow policy rates have more "to give than to receive", while those from and to cryptocurrency returns are naturally volatile. There is also strong interconnectedness between monetary policy in either the US or the Eurozone and the UK, and between Bitcoin and Litecoin. However, the spillovers across monetary policy and cryptocurrencies tend to be muted. Finally, spillovers were only slightly larger during the Fed's "unconventional" policy compared to the "standard" era, but their composition qualitatively changed over time.

This paper investigates the impact of macro-prudential policy (proxied by the counter-cyclical capital buffer (CCyB)) on bank credit risk during uncertain times, as banking sector stability is crucial in promoting financial intermediation. Using a unique daily data set consisting of 4939 credit default swaps (CDS) of 70 banks from 25 countries over the period 2010–2019, we find that CCyB tightening decreases bank-level CDS spreads, while CCyB loosening increases CDS spreads. This heterogeneous effect of CCyB arises due to its asymmetric effect on the capital ratio (i.e., the equity-to-total assets ratio) of banks. Tightening CCyB significantly increases capital, whereas loosening CCyB does not impact capital. Thus, the risks that emanate from the banking sector during periods of heightened uncertainty and financial distress can be significantly dampened when CCyB regulation is enabled. Consequently, macro-prudential policies for banks to hold higher levels of capital during good times are justified to contain financial market risks during downturns.

Fiscal rules are typically seen as government constraints. Yet, the extent to which they are substituted or complemented by market discipline (especially, during financial stress) remains unexplored. Using data for 71 countries over the period 1985–2015, we estimate an “augmented” fiscal reaction function to assess the impact of both fiscal and market discipline. We find that different market signals influence fiscal policy, but fiscal discipline depends on market incentives. In the EU and the OECD, market signals complement fiscal rules. These are less effective in the EMU and non-OECD countries that are “debt intolerant”. Yet, there are unintended consequences: (i) neither output and debt stabilisation, nor fiscal rules affect the fiscal stance in the absence of financial crises; and (ii) financial stress makes fiscal discipline a destabilising factor, while central bank actions almost dismiss it. Finally, market (fiscal) discipline effects are (not) persistent and stronger (more uncertain) for the EMU.

Using long-term sovereign ratings data for a panel of 130 countries over the last three decades, we investigate the duration and determinants of sovereign rating phases through the lens of discrete-time Weibull models. We find that the likelihood of the end of the ‘speculative-grade’ phase increases as time goes by (i.e. there is positive duration dependence), but the ‘investment-grade’ phase is not duration dependent. Thus, for sovereigns rated as speculative, the build-up of reputation as good borrowers is a gradual process, whereas the reputation of investment-grade sovereigns solidifies and remains unchanged as time passes. However, the length of both phases significantly depends on the country's economic conditions. In particular, lower inflation, stronger growth and sounder fiscal policies shorten (prolong) the speculative- (investment-) grade phase. In addition, better governance quality helps to reduce the duration of speculative-grade phases.

We use a novel continuous-time Weibull model (without and) with a change-point in the duration dependence parameter to investigate the duration of the exit and re-entry of sovereigns to international capital markets. Relying on annual data for a large panel of countries over the period 1970-2011, we find that, as the reputation of debtor countries as good (bad) borrowers solidifies over time, those episodes are more likely to end - i.e. the "legacy of time". Debtor countries can take advantage of the "benefit of doubt" of creditors during short exit spells. However, when exits are long and the reputation as a bad borrower emerges, no more "complacency" makes it more difficult for them to borrow again in international capital markets - i.e. the "tyranny of time". We also find that: (i) government stability and multilateral financial assistance play a crucial role; (ii) the dynamics of the duration of exit (re-entry) spells is robust to the presence of default episodes, the default length and the haircut size; and (iii) exit and re-entry have shortened over time.

We investigate the interconnectedness and spillovers between oil price inflation and CPI inflation in the G7 countries and China over the available period 1987M6-2020M6. To this end, we employ the multivariate DECO-GARCH model and both time-domain and frequency-domain spillover methods to achieve the objectives. We find that there is a reasonably high degree of integration between the oil price inflation and the CPI inflation rates in those countries. This relationship is not only time-varying, but also has been rising over time and, remarkably so, during oil crises and financial stress episodes. We also show that the oil price inflation is a crucial transmitter of spillovers to the CPI inflation of the countries under consideration, particularly to the US inflation, which, in turn, has a weak to mild influence on the paths of inflation of other countries. Additionally, the largest gross directional spillovers to other CPI inflation rates accrue to the US, while the lowest accrue to China. Finally, the oil price inflation influences the CPI inflation over the short-end of the business cycle, but much less so over the medium- to long-ends.

In this paper, we provide a forensic perspective of the determinants of banks' CDS spreads. Using data for 118 banks of 30 countries over the period 2004-2011, we find that banks' default risk typically reflects: (i) the quality of the banks’ balance sheet; (ii) liquidity of banks’ assets; (iii) how profitable banks’ operations are; (iv) the banks’ leverage ratios; and (v) how stringent/lenient regulatory capital ratios are. Considering a series of indicators of the financial structure of the banking system, our results reveal that: (i) higher concentration of the banking sector, stronger presence of foreign banks and a deterioration of the health of the banking sector lead to higher banks' CDS spreads; and (ii) the availability of alternative means of finance does not significantly influence banks' default risk. We also show that periods of high inflation, low GDP growth and stock market crashes are prone to an intensification of tensions in the banking system, but financial reforms (especially, in the field of banking supervision and privatizations) can mitigate them. Moreover, the timing, the duration and the composition of fiscal consolidation programs have a significant impact on banks' CDS spreads, and, in particular, expenditure-driven consolidation episodes are associated with a rise in banks' default risk. Finally, we highlight that although the financial crisis of 2008-2009 was a global event, higher quality of economic and legal institutions (and, therefore, in the regulatory framework) could have dampened the rise in bank' CDS spreads.

We employ a discrete-time parametric duration model on a group of 121 countries over the period 1970–2011 and find that the probability of the end of financial markets' shutdown and reaccess falls as these events become longer. We also show that: (1) shutdown episodes are longer when economic prospects are poor and the degree of financial openness falls, the chief executive has been in office for long periods, and the country has a default history and (2) spells of reaccess tend to be longer when economic growth improves and financial openness increases, there are neither government crises nor government instability, and the country did not default in the past. (JEL C41, G15)

We find that fiscal austerity is associated with a reduction of human development standards, with the negative effect being particularly severe in the case of spending-driven consolidation episodes. Fiscal adjustments are especially damaging for human development in developing countries (namely, African and Latin American countries). Additionally, the empirical evidence shows that (i) government stability is a crucial institutional determinant of human development, and (ii) while investment in physical capital can boost human development, government consumption and inflation are detrimental to it. Copyright © 2017 John Wiley & Sons, Ltd.

Using quarterly data for a group of 20 industrialized countries and both continuous- and discrete-time duration models, we show that financial crisis recessions are associated with a two- to three-fold increase in the likelihood of the end of a housing boom. Additionally, recessions preceded by booms in mortgage credit are especially damaging, as their occurrence coincides with an increase in the duration of housing market slumps of almost 90%.

We analyze predictability of risk premium in the context of model uncertainty. Using data for the euro area, the US and the UK, we show that there is a large amount of model uncertainty and one can improve the forecasts of stock returns with a Bayesian Model Averaging (BMA) approach. The empirical evidence for the euro area suggests that several macroeconomic, financial and macro-financial variables are consistently among the most prominent determinants of risk premium. As for the US, only a few number of predictors play an important role. In the case of the UK, future stock returns are better forecasted by financial variables. These results are corroborated for both the M-open and the M-closed perspectives, different model priors and in the context of “in-sample” and “out-of-sample” forecasting. Finally, we highlight that the predictive ability of the BMA framework is stronger at longer periods, and clearly outperforms the constant expected returns and the autoregressive benchmark models.

The existing literature has typically focused on bank-level characteristics to uncover the main drivers of bank CDS spreads. In this paper, we use data for 58 banks from 15 countries over the period 2004–2011 to assess whether country-level factors also explain variations in bank CDS spreads. In particular, we focus on financial structure indicators (namely, financial stability, depth, access and efficiency) and country risks (i.e. economic, financial and political rating risks) to explain why some banks experience higher levels of credit risk relative to others across countries. We find that while country-level financial instability is associated with higher credit risk; bank-level profitability, liquidity and improved asset quality are linked with lower credit risk. In addition, although country-level financial depth (as an indicator of credit bubble) contributes to higher CDS spreads, house price appreciation tends to dampen credit risk.

We use a nonparametric causality-in-quantiles test to compare the predictive ability of the consumption-wealth ratio ( cay) and the Markov Switching version ( cay MS ) for excess and real stock and housing returns and their volatility. Our results reveal strong evidence of nonlinearity and regime changes in the relationship between asset returns and cay or cay MS , which corroborates the relevance of this econometric framework. Moreover, both cay or cay MS are found to predict only excess stock returns over its entire conditional distribution, with the latter being a strong predictor only at certain quantiles. As for the housing market, these two consumption-wealth ratios only predict the volatility of real housing returns, with cay MS outperforming cay over the majority of the conditional distribution.

In this paper, we investigate the hedging versus the financialization nature of commodity futures vis-a-vis the equity market using a ARMA filter-based correlation approach. Our results suggest that while gold futures are typically seen as a hedge against unfavorable fluctuations in the stock market, the majority of commodity futures appears to be treated as a separate asset class in line with their increasing financialization. Our results are robust to the presence of inflation, highlight the hedging role played by fuel (energy) commodity futures in the nineties, and reveal that the commodity financialization boosted since the 2000s. We also show that gold futures are partially a safe haven for equity investments in the short-term, but not in the mid-term. Finally, we uncover some hedging (financialization) of crude oil futures associated to global demand (oil supply) shocks.

We investigate the response of the central bank to the change in size of non-bank financial intermediaries. Using quarterly data for the U.S. over the period 1946:Q1-2016Q4, we find that when faced with an increase in the asset growth of the securities' brokers and dealers and the shadow banking sector, the monetary authority reacts by raising the short-term nominal interest rate. This response is stronger in the case of sharp variation in the size of the balance sheet of nonbank financial intermediaries. From a policy perspective, our study suggests that an extended version of the original Taylor rule - embedding both price stability and financial stability concerns – provides a good characterisation of the monetary policy reaction function.

We use duration analysis to assess the impact of securitization, mortgage sector liberalization and government involvement in housing finance on the length of housing booms, busts and normal times in a panel of 20 OECD countries over the period 1970Q1-2015Q4. Our results reveal that a move towards a more liberalized mortgage sector is associated with longer housing booms, while an increase in securitization is linked with shorter housing busts. They also show that the length of housing booms and busts is particularly sensitive to housing finance characteristics, but that does not seem to be the case for normal times. Additionally, government support measures do not necessarily cushion against housing busts. A careful assessment of their distributional impact, as well as their effect on the trade-off between liquidity and guarantee/loan provision, is also required to prevent (longer) housing booms. All in all, housing finance regulation may prove especially relevant to shield against the damaging effects of housing busts and the financial stability risks associated with housing booms. Monetary policy can also be an important complement to macro-prudential policies. Finally, government participation in housing finance should be designed in a way that avoids an undesirable amplification of house price fluctuations.

We assess the spillovers from the oil sector to the housing market cycle using quarterly data for 20 net oil-exporting and -importing industrial countries, and employing continuous- and discrete-time duration models. We do not uncover a statistically significant difference in the average duration of booms and normal times in the housing markets of those net oil-importers and net oil-exporters. Similarly, the degree of exposure to commodity price fluctuations does not seem to significantly affect the housing market cycle. However, we find that housing booms are shorter when oil prices increase than housing busts when oil prices decrease. We also show that the net oil-importers are more vulnerable to protracted housing slump episodes than the net-oil exporters., Compete 2020, Portugal 2020, Feder, FCT

Using quarterly data for a panel of advanced economies, we show that synchronized fiscal consolidation (stimulus) programmes in different countries make their business cycles more closely linked. We also find: (i) some evidence of decoupling when an inflation targeting regime is unilaterally adopted; (ii) an increase in business cycle synchronization when countries fix their exchange rates and become members of a monetary union; (iii) a positive effect of bilateral trade on the synchronization of business cycles. Global factors, such as a rise in global risk aversion and uncertainty and a reversal of nonstandard expansionary monetary policy, can also reduce the degree of co-movement of business cycles across countries. From a policy perspective, our work shows that an inflation targeting regime coupled with simultaneous fiscal consolidations can lead to more business cycle synchronization.

This paper focuses on the macroeconomic and wealth effects of unconventional monetary policy. To this end, we estimate a Bayesian Structural Vector Autoregression (B-SVAR) using U.S. monthly data for the post-Lehman Brotherscollapse period. We show that a positive shock to the growth rate of central bank reserves does not have a substantial impact on the industrial production or the consumer price. However, the shock gives a strong boost to asset prices, which is larger in magnitude for stock prices than for housing prices. Thus, unconventional monetary policy typically operates via portfolio rebalancing effects. A VAR counter-factual exercise confirms the role of the shocks to the growth rate of central bank reserves in explaining the dynamics of the variables included in the system, especially, in the case of asset prices. Finally, additional empirical assessments uncover an important change in the conduct of monetary policy from "standard" to "exceptional" times and the suitability of our model in capturing such structural transformation., We are grateful to participants to the Third International Symposium in Computational Economics and Finance (ISCEF), organized in Paris on April 10-12 2014 (http://www.iscef.com), and two anonymous referees for their constructive comments that considerably improved this paper. Sousa acknowledges that this work has been financed by Operational Programme for Competitiveness Factors-COMPETE and by National Funds through the FCT-Portuguese Foundation for Science and Technology within the remit of the project "FCOMP-01-0124-FEDER-037268 (PEst-C/EGE/UI3182/2013)." Traverso is also highly indebted to the suggestions made by Vitor Castro. Address correspondence to: Ricardo M. Sousa, University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 Braga, Portugal; e-mail: rjsousa@eeg.uminho.pt,rjsousa@alumni.lse.ac.uk., info:eu-repo/semantics/publishedVersion

©2016 American Real Estate and Urban Economics Association We use a representative consumer model to analyze the relation between the transitory deviations of consumption from its common trend with aggregate wealth and labor income, cay, and the housing risk premium. The evidence based on data for 15 OECD countries shows that, if financial and housing assets are seen as complements, investors will temporarily allow consumption to rise when they expect a rise in future housing returns. By contrast, if housing assets are treated as substitutes for financial assets, consumption will be reduced.

We investigate the role of global factors in explaining the length of commodity price cycle phases, using a continuous-time Weibull duration model and data for a panel of 33 countries over the period 1980Q1-2015Q4. We find evidence of increasing (constant) positive duration dependence for commodity price booms and busts (normal time spells). Global macroeconomic conditions - in particular, inflation, economic policy uncertainty and monetary policy actions - significantly affect the duration of all commodity price cycle phases. Global environmental conditions also impact the duration of commodity price booms, with a rise in average temperature (rainfall) increasing (reducing) their length. A rise in the number of military conflicts around the globe is associated with shorter booms and busts. Finally, we find that a rise in oil prices is linked with longer booms and shorter busts.

"Published online: 19 Oct 2015", Using a panel of 13 advanced economies for the period 1980–2012, we find that periods of impaired financial intermediation mainly accrue to maturity mismatches in sovereign debt. Thus, a higher (lower) share of short-term (medium and long-term) debt leads to an increase in the financial stress index. From a policy perspective, our work suggests that debt management policies translated into longer average maturities of sovereign debt not only reduce the expected debt servicing cost, but also mitigate strains in the financial sector., FCT Fundação para a Ciência e Tecnologia (COMPETE 2020, PORTUGAL 2020, FEDER)

Building on a narrative approach to identify episodes of fiscal consolidation, data for a group of 17 industrial countries over the period 1978-2009 and continuous-time duration models, we find evidence suggesting that the likelihood of a fiscal consolidation ending increases over time, but only for programs that last less than six years. Additionally, fiscal consolidations tend to last longer in non-European than in European countries. Our results emphasize that chronic fiscal imbalances might lead to a vicious austerity cycle, while discipline in the behaviour of fiscal authorities is a means of achieving credible and shorter adjustment measures. Therefore, fiscal fatigue is likely to compromise the implementation and successfulness of fiscal consolidation programmes., COMPETE, QREN, FEDER, Fundação para a Ciência e a Tecnologia (FCT)

We use the nonlinear autoregressive distributed lags (NARDL) model to analyse the asymmetric and nonlinear pass-through effects of changes in crude oil prices, natural gas prices, coal prices and electricity prices on the CO2 emission allowance prices. We find that: (i) the crude oil prices have a long-run negative and asymmetric effect on the CO2 allowance prices; (ii) the decreases in the coal prices have a stronger impact on the carbon prices in the short-run than the increases; (iii) the natural gas prices and electricity prices have a symmetric effect on the carbon prices, but this effect is negative for the former and positive for the latter. These findings are robust when using both monthly and daily data and when considering a bivariate and a multivariate models., COMPETE, QREN, FEDER, FCT

In this paper, we assess the characteristics of the housing market and its main determinants. Using data for 20 industrial countries over the period 1970Q1–2012Q2 and a discrete-time Weibull duration model, we find that the likelihood of the end of a housing boom or a housing bust increases over time. Additionally, we show that the different phases of the housing market cycle are strongly dependent on the economic activity, but credit market conditions are particularly important in the case of housing booms. The empirical findings also indicate that although housing booms have similar lengths in European and non-European countries, housing busts are typically shorter in European countries. The use of a more flexible specification for the hazard function that is based on cubic splines suggests that it evolves in a nonlinear way. From a policy perspective, our study can be useful for predicting the timing and the length of housing boom–bust cycles. Moreover, it highlights the importance of monetary policy by influencing lending rates and affecting the likelihood of occurrence of housing booms.

We assess the conditions under which exchange rate fluctuations are contractionary for firm-level investment. To address this question, we match firm-level balance sheet data with a large dataset of firm-level bonds for about 1,000 firms from 36 emerging market economies over the period 1998–2014. We augment a standard firm-level investment model to control for (country-specific) macroeconomic variables, and interact the effect of an exchange rate depreciation with several dimensions of bond composition, namely: 1) currency of issuance; 2) maturity structure of bonds; and 3) market of issuance. We find that, conditional on the amount of debt issued in foreign currency, an exchange rate depreciation can have a contractionary impact on a firm’s investment spending. We also find that the market of issuance and maturity structure, in particular, when coupled with foreign currency-denominated debt can influence this impact.

"Published online: 15 Aug. 2014", Using a panel of developed and developing countries and data for the period 1980 to 2005, we find that debt crises trigger financial reforms.We also show that (i) when general economic conditions deteriorate, financial reforms become more likely to take place; (ii) IMF-stabilization programmes and sovereign debt restructurings favour the implementation of financial reforms; and (iii) the quality of economic institutions strongly boosts financial reforms., COMPETE, QREN, FEDER, Fundação para a Ciência e a Tecnologia (FCT)

This paper examines the wealth effects on consumption for the US, the UK and the Euro area using linear models and quantile regression approaches. We find that the elasticity of consumption with respect to aggregate wealth is largest for the UK, but housing wealth effects do not seem to be relevant in the Euro area. In addition, the sensitivity of consumption to changes in wealth is stronger when consumption growth is abnormally high. Overall, our results suggest that the link between consumption and wealth is significantly different across the distribution of consumption growth., Ce papier se focalise sur l‟étude de l‟effet de richesse sur la consommation aux EtatsUnis, au Royaume-Uni et dans la zone euro, en utilisant des régressions linéaires et l‟approche de régression quantile. Nos résultats montrent une élasticité élevée de la consommation par rapport à la richesse agrégée au Royaume-Uni, tandis que l‟élasticité par rapport à la richesse immobilière est non significative dans la zone euro. En outre, la sensibilité de la consommation aux changements de l‟effet richesse s‟accroît pour des niveaux élevés du taux de croissance de la consommation. Au total, nos résultats suggèrent des relations entre la consommation et la richesse significativement différentes selon la distribution du taux de croissance de la consommation., COMPETE, QREN, FEDER, Fundação para a Ciência e a Tecnologia (FCT)

We develop a novel empirical approach to assess the effect of discretionary fiscal policy on private spending consisting of three stages: 1) extract the discretionary component of fiscal policy by estimating a fiscal policy rule; 2) use the residuals of the first-stage regression to investigate the existence of crowding-in and/or crowding-out effects both in the short and the medium term; and 3) condition the response of private spending on a set of country characteristics. We find that an expansion in discretionary fiscal policy boosts growth in the short term, but is detrimental in the medium term. In addition, the empirical findings suggest that the effect of discretionary fiscal policy on private spending varies across regions and income groups, and depends on countries' economic characteristics such as the level of economic development, trade openness, government and country size.

Using data for a large panel of countries, this paper investigates the role played by income inequality and fiscal stimuli episodes in shaping the likelihood of political stability. By means of Tobit estimations, we show that a rise in inequality increases the probability of government crises. However, such adverse distributional effect is reduced when expansionary or increasingly expansionary fiscal stimuli episodes or successful fiscal stimuli programs are put in place., COMPETE2020, Feder, Portugal 2020, FCT

JEL classification: G01; C22; E21, This paper examines the effects of wealth on consumption for the US, the UK and the Euro area using a smooth-transition regression (STR) model. We find evidence of an asymmetric and time-varying relationship between consumption and wealth. Additionally, our model tracks consumption patterns reasonably well during periods of economic downturn, financial instability and housing market corrections. While wealth effects are not significant in the Euro area, they are statistically significant and time-varying in the US and the UK. Interestingly, changes in housing wealth are source of switching between regimes in the US., Feder, Compete 2020, Portugal 2020, FCT

This paper analyzes the dynamic impact of discretionary government consumption purchases on private demand. Using a panel of 132 countries from 1960 to 2008, we find that while discretionary changes in government consumption lead to crowding-in effects in the short run, crowding-out effects take over in the medium run. In addition, we also find that both short-term crowding-in and mediumterm crowding out effects are amplified once we control for periods of crisis., COMPETE; QREN; FEDER; Fundação para a Ciência e a Tecnologia (FCT)

I look at the linkages between monetary policy and asset wealth using quarterly data for the USA. I show that a positive interest rate shock leads to a fall in aggregate wealth and an important change in portfolio composition: housing wealth gradually decreases, but the effects are very persistent; and financial wealth quickly shrinks, but the impact is short-lived. I also find that the money market can be characterized as follows: (i) the money demand has a large interest elasticity and a small output elasticity; and (ii) the estimated monetary policy reaction function highlights the special focus given by the central bank to developments in monetary aggregates. These features call for an approach whereby monetary authorities put more emphasis on tracking wealth developments, in particular, given the asset portfolio rebalancing between money holdings and financial and/or housing assets.

I assess the relative performance of several exmpirical proxies developed in the literature of asset pricing to capture time variation in expected future returns using data for the United States and the United Kingdom. I show that the wealth composition risk by Sousa (2010a) exhibits strong forecasting power and tracks risk premium better than many economically motivated variables., COMPETE, QREN, FEDER, Fundação para a Ciência e a Tecnologia (FCT)

We assess the role played by fiscal policy in explaining the dynamics of asset markets. Using a panel of ten industrialized countries, we show that a positive fiscal shock has a negative impact in both stock and housing prices. However, while stock prices immediately adjust to the shock and the effect of fiscal policy is temporary, housing prices gradually and persistently fall. As a result, the attempts of fiscal policy to mitigate stock price developments may severely de-stabilize housing markets. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding-out effects; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) significant fiscal multiplier effects in the context of severe housing busts; and (iv) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances., Fundação para a Ciência e a Tecnologia (FCT) - Programa Operacional Ciência e Inovação 2010 (POCI 2010), Fundo Europeu de Desenvolvimento Regional (FEDER)

Summary We contribute to the empirical literature on the effect of government spending on economic activity, by assessing the impact of changes in government spending-GDP ratio on (the short-term growth rates of) private consumption and investment. We do this by analysing a panel sample of 145 countries from 1960 to 2007. The results of our paper suggest that government spending produces important crowding-out effects, by negatively affecting both private consumption and investment. The result is broadly robust to both country and time effects, and different econometric specifications. In addition, we show that the effect of government consumption on private consumption and investment does not depend on the phase of the business cycle, but differs substantially among regions. The differentiated effects of government consumption on private consumption and investment among geographical areas are extremely important and need to be further investigated. In particular, it would be interesting to assess to which extent the effect of government spending on consumption and investment depends on political and institutional variables (e.g. democracy, corruption, political stability) as well as macroeconomic variables (income, interest rates, degree of openness). We leave this challenging avenue for future research.

We use a 3SLS method and a system of equations to recursively estimate two components of fiscal policy – responsiveness and persistence – and to infer about the sources of fiscal deterioration (improvement). Using quarterly data, the results suggest that: (i) government spending exhibits higher persistence than government revenue; and (ii) government revenue is more responsive to the business cycle than government spending, pointing to fiscal deterioration issues., Fundação para a Ciência e a Tecnologia (FCT)

We are among the first to provide evidence for the BRICS countries on the predictability of stock returns using macroeconomic, macro-financial and US/global variables and find that there is predictability for all the countries. We consider both in-sample and out-of-sample tests. The gains in predictability are primarily available one quarter ahead, but in some cases, two and four quarters ahead., Sousa acknowledges that this work has been financed by Operational Programme for Competitiveness Factors — COMPETE and by National Funds through the FCT — Portuguese Foundation for Science and Technology within the remit of the project “FCOMP-01- 0124-FEDER-037268” (PEst-C/EGE/UI3182/2013)., Compete 2020, Portugal 2020, Feder, FCT, info:eu-repo/semantics/publishedVersion

The deviation from the assumption of constant relative risk aversion implies that wealth shocks generate transitory variation in risk aversion and, possibly, portfolio re-allocation over time. I analyze this relationship for the U.S. and nd evidence that is consistent with counter-cyclical risk aversion. I also show that: (i) housing assets are typically used as an hedge against adverse wealth uctuations; (ii) wealth e¤ects on asset allocation are signi cant and there is no evidence of inertia; and (iii) changes in expected future returns partially explain variation in the risky asset allocation., COMPETE, QREN, FEDER, FCT

"Available online 1 August 2014", We test for nonlinear effects of asset prices on the fiscal policy of threemajor European economies (the UK, Italy and Spain).We model primary government spending and government revenue as time-varying transition probability Markovian processes (TVPMS). We find that while in Italy fiscal policy is substantially neutral vis-à-vis asset price movements, fiscal authorities in the UK and Spain seem to track the dynamics of wealth. In particular, revenue-based fiscal policy interventions in the UK are particularly effective in counteracting shocks in the asset markets induced by sharp wealth fluctuations. Similarly, in Spain, the spending-side of the fiscal policy plays a dominant role in stabilizing stock and housing markets., COMPETE, QREN, FEDER, Fundação para a Ciência e a Tecnologia (FCT)

We use data for a panel of 60 countries over the period 1980–2005 to investigate the main drivers of the likelihood of structural reforms. We find that: (i) external debt crises are the main trigger of financial and banking reforms; (ii) inflation and banking crises are the key drivers of external capital account reforms; (iii) banking crises also hasten financial reforms; and (iv) economic recessions play an important role in promoting the necessary consensus for financial, capital, banking and trade reforms, especially in the group of OECD-countries. Additionally, we also observe that the degree of globalisation is relevant for financial reforms, in particular in the group of non-OECD countries. Moreover, an increase in the income gap accelerates the implementation of structural reforms, but increased political fragmentation does not seem to have a significant impact., COMPETE, QREN, FEDER, Fundação para a Ciência e a Tecnologia (FCT)

In this paper, I assess the predictive ability of the ratio of asset wealth to labour income for both stock returns and government bond yields. Using data for 16 Organization for Economic Co-operation and Development (OECD) countries, I show that when the wealth-to-income ratio falls, investors demand a higher stock risk premium. A similar link can be found for government bond yields when agents behave in a non-Ricardian manner or see government bonds as complements for stocks. In contrast, when investors display a Ricardian behaviour or perceive stocks and government bonds as good substitutes, a fall in the wealth-to-income ratio is associated with a fall in future bond premium., COMPETE, QREN, FEDER, Fundação para a Ciência e a Tecnologia (FCT)

We test the predictive ability of the transitory deviations of consumption from its common trend with aggregate wealth and labour income, cay, for both future equity and housing risk premia in emerging market economies. Using quarterly data for 31 markets, our country-level evidence shows that forecasting power of cay vis-à-vis stock returns is high for Brazil, China, Colombia, Israel, Korea, Latvia and Malaysia. As for housing returns, the empirical evidence suggests that financial and housing assets are perceived as complements in the case of Chile, Russia, South Africa and Thailand, and as substitutes in Argentina, Brazil, Hong Kong, Indonesia, Korea, Malaysia, Mexico and Taiwan. Using a panel econometric framework, we find that the cross-country heterogeneity observed in asset return predictability does not accrue to regional location, but can be attributed to differences in the degree of equity market development and in the level of income., FCT Fundação para a Ciência e Tecnologia (COMPETE 2020, PORTUGAL 2020, FEDER)

This paper analyzes the impact of financial sector policy changes on the dynamics of public debt. Using a panel of 89 countries from 1973 to 2005, we find that while the implementation of (large) financial liberalisation policies significantly raises the public debt growth rate, the adoption of financial re-regulation measures leads to a mild reduction of public debt. Looking at the different typologies of financial sector policy changes, we show that stricter banking supervision, privatisations and restrictions to international capital flows contribute to a fast decline of the growth rate of public debt. In contrast, the removal of entry barriers and the elimination of interest rate controls boost public debt growth. Finally, our results confirm that financial re-regulation is more likely to succeed when inflation is high, while large financial liberalisation measures significantly raise public debt when economic growth is low. Our results are robust to various estimation techniques and model specifications and to the inclusion of different control variables., COMPETE, QREN, FEDER, FCT