Are Fiscal and Monetary Policies Reflected in Real Yields? Evidence from a Period of Disinflation and Declining Deficit Targets

34 Pages Posted: 17 Apr 2012

See all articles by Hedva Ber

Hedva Ber

Bank of Israel - Research Department

Adi Brender

Bank of Israel - Research Department

Sigal Ribon

Bank of Israel - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 2004

Abstract

Ber, Brender and Ribon study the effects of fiscal and monetary policy on real bond yields with reference to the Israeli experience during the 1990s. They find that both monetary and fiscal policy affect real yields. On the one hand, fiscal policy has a direct impact on the money market via the expected deficit and an indirect one via inflation expectations. The former mechanism is relevant only when the effects of the cycle are accounted for and it is larger on long-term than on short-term yields. On the other hand, monetary policy has a marked direct impact on short-term yields, but also on long-term ones, the latter effect being attributed to the disinflationary policy implemented in Israel during the 1990s. The authors also find that the formal deficit targets, adopted by the government since the early 1990s, had a distinguishable effect on the yields, beyond that of the expected cyclically adjusted deficit.

Suggested Citation

Ber, Hedva and Brender, Adi and Ribon, Sigal, Are Fiscal and Monetary Policies Reflected in Real Yields? Evidence from a Period of Disinflation and Declining Deficit Targets (April 1, 2004). Available at SSRN: https://ssrn.com/abstract=2040814 or http://dx.doi.org/10.2139/ssrn.2040814

Hedva Ber

Bank of Israel - Research Department ( email )

PO Box 780
Jerusalem 91007
Israel
+97 2 6552 608 (Phone)
+97 22 6552 660 (Fax)

Adi Brender (Contact Author)

Bank of Israel - Research Department ( email )

PO Box 780
Jerusalem 91007
Israel
+972 2 655 2618 (Phone)
+972 2 655 2657 (Fax)

Sigal Ribon

Bank of Israel - Research Department ( email )

PO Box 780
Jerusalem 91007
Israel

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