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Fiscal shocks in a globalised world

Ramifications of fiscal shocks in a globalised world

The impact of fiscal policy on exchange rates is of key interest to policymakers. This column argues that unexpected government spending instantly affects exchange rates. The finding, predicated on daily data reporting of the united states Defence Department, may claim that unexpected government spending has broader macroeconomic effects aswell. The results, however, usually do not hold is low-frequency data are used instead.

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Fiscal shocks

Fiscal shocks

323 years of UK national debt

A fresh dataset for the marketplace value of British government debt makes a long-run analysis of fiscal sustainability and debt management possible. It implies that the 20th century saw a shift to financing debt by inflation and low bondholder returns, instead of through fiscal surpluses. This column runs on the counterfactual analysis showing that long bonds have already been an expensive method of financing debt, especially after a financial meltdown. Had the federal government issued only three-year bonds since 1914, the amount of debt in 2017 could have been lower by 28% of GDP.