U.S. Fiscal Policy and Asset Prices: The Role of Partisan Conflict

International Review of Finance, Forthcoming

19 Pages Posted: 19 Jun 2017 Last revised: 26 May 2018

See all articles by Rangan Gupta

Rangan Gupta

University of Pretoria - Department of Economics

Chi Keung Lau

University of Huddersfield

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Mark E. Wohar

University of Nebraska at Omaha

Date Written: June 17, 2017

Abstract

Fiscal policy shocks exert wide-reaching effects, including movements in asset markets. U.S. politics have been characterized historically by a high degree of partisan conflict. The combination of increasing polarization and divided government leads not only to significant Congressional gridlock, but also to spells of high fiscal policy uncertainty. This paper adds to the literature on the relationships between fiscal policy and asset prices in the U.S. economy, conditional on the degree of partisan conflict. We analyze whether a higher degree of partisan conflict (legislative gridlock) reduces the efficacy of the effect and response of fiscal policy on and to asset price movements, respectively. We find that partisan conflict does not significantly affect the relationships between the fiscal surplus to GDP and housing and equity returns. Rather, if important, partisan conflict affects the actual implementation of fiscal policy actions.

Keywords: Quantile structural VAR, fiscal policy, stock prices, house prices, partisan conflict

JEL Classification: , E62, G10, H30, R30

Suggested Citation

Gupta, Rangan and Lau, Chi Keung and Miller, Stephen M. and Wohar, Mark E., U.S. Fiscal Policy and Asset Prices: The Role of Partisan Conflict (June 17, 2017). International Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2988379 or http://dx.doi.org/10.2139/ssrn.2988379

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Chi Keung Lau

University of Huddersfield ( email )

Queensgate
Huddersfield HD1 3DH, West Yorkshire HD1 3DH
United Kingdom

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Mark E. Wohar

University of Nebraska at Omaha ( email )

Department of Economics
6708 Pine Street MH 332S
Omaha, NE 68182
United States
402-554-3712 (Phone)
402-554-2853 (Fax)

HOME PAGE: http://cba.unomaha.edu/faculty/mwohar/WEB/homepage.html

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