Title: Fiscal activism and the cost of debt financing
Authors: Dewachter, Hans ×
Toffano, Priscilla #
Issue Date: 2012
Publisher: Wiley
Series Title: International Journal of Finance & Economics vol:17 issue:1 pages:14-22
Abstract: In this paper, we estimate the impact of changes in fiscal policy regime on the yield curve. In particular, we differentiate between yield curve responses under active and passive fiscal policy regimes (according to the terminology of Leeper (1991)). Analyzing US data in the period 1965–2010, we find a statistically significant impact of fiscal policy only for the active policy regime. A one-percentage point shock in the primary deficit leads typically to a contemporaneous increase in long-term yields of about 10 basis points, and even stronger cumulative effects. No significant impact of deficits on yields is found in the passive fiscal policy regime.
ISSN: 1076-9307
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of International Economics, Leuven
× corresponding author
# (joint) last author

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