Government size and risk premium

Abhishek Kumar and Sushanta Mallick

No wp-2024-24, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: Given the rise in the government debt level in recent times, this paper aims to examine the effect of an increase in government size on risk premium and its transmission in the economy. We jointly identify the term spread shock (originating at the short end and the long end) and the government size shock, using max share identification. Term spread shock originating at the long end is driven by higher risk premium, unlike the shock originating at the short end, and increases inflation and reduces growth.

Keywords: Debt; Fiscal policy; Monetary policy; Fiscal consolidation (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-fdg and nep-fmk
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