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| dc.title | Monetary Policy under Fiscal Risk |
| dc.contributor.author | Villamizar-Villegas, Mauricio |
| dc.contributor.author | Valencia, Oscar |
| dc.contributor.author | Prado Garcia, Andres Felipe |
| dc.contributor.author | Aya, Nicolás |
| dc.contributor.orgunit | Country Department Central America, Haiti, Mexico, Panama and the Dominican Republic |
| dc.date.available | 2026-11-11T12:11:00 |
| dc.date.issue | 2026-11-11T00:11:00 |
| dc.description.abstract | Fiscal stance and sovereign credibility shape monetary policy transmission even outside fiscal dominance. Using a panel of advanced and emerging economies since the mid-1990s, we show that sovereign-risk regimes differ less by headline debt than by borrowing costs, debt composition, and interest burdens. Elevated sovereign risk weakens the transmission of monetary policy, foreign-exchange intervention, macroprudential tools, and capital- flow measures to prices, exchange rates, and output. A small open-economy model with a fiscal block can rationalize these patterns. Emerging markets operate under tighter fiscal constraints, rely more on multi-instrument configurations, and face a narrower stabilization frontier, including cases in which conventional tightening loses its disinflationary effect. |
| dc.format.extent | 42 |
| dc.identifier.doi | http://dx.doi.org/10.18235/0014598 |
| dc.identifier.url | https://publications.iadb.org/publications/english/document/Monetary-Policy-under-Fiscal-Risk.pdf |
| dc.language.iso | en |
| dc.publisher | Inter-American Development Bank |
| dc.subject | Fiscal Policy |
| dc.subject | Sovereign Guaranteed Credit Risk |
| dc.subject | Sovereign Default |
| dc.subject | Public Debt |
| dc.subject | Gross Domestic Product |
| dc.subject | Economy |
| dc.subject | Credit |
| dc.subject | Traditional Economy |
| dc.subject.jelcode | E52 - Monetary Policy |
| dc.subject.jelcode | E62 - Fiscal Policy |
| dc.subject.jelcode | F31 - Foreign Exchange |
| dc.subject.jelcode | F34 - International Lending and Debt Problems |
| dc.subject.keywords | Monetary policy transmission;sovereign risk;Fiscal space;Foreing-exchange intervention;Macroprudential |
| dc.type | Working Papers |
| idb.identifier.pubnumber | IDB-WP-01911 |
| idb.operation | RG-T4529 |