Pub Date : 2026-01-24DOI: 10.1016/j.jmacro.2026.103740
Jamus Jerome Lim , Xin Long
We study how deviations from covered interest parity — captured by the cross-currency basis (CCB) — affect output growth. Using quarterly data for advanced economies (AEs) and emerging markets (EMs) in panel VAR and IV-local-projections models, we find that positive CCB shocks reduce output, implying that easier dollar funding conditions can be contractionary. While dollar liquidity still supports growth during acute stress episodes in AEs, it has the opposite effect in normal times. In AEs, exchange-rate appreciation compensates holders of local-currency assets, eroding export competitiveness and lowering growth. In EMs, easier dollar access encourages shifts into local-currency assets, crowding out domestic liquidity and dampening activity.
{"title":"The dollar squeeze and economic growth","authors":"Jamus Jerome Lim , Xin Long","doi":"10.1016/j.jmacro.2026.103740","DOIUrl":"10.1016/j.jmacro.2026.103740","url":null,"abstract":"<div><div>We study how deviations from covered interest parity — captured by the cross-currency basis (CCB) — affect output growth. Using quarterly data for advanced economies (AEs) and emerging markets (EMs) in panel VAR and IV-local-projections models, we find that positive CCB shocks reduce output, implying that easier dollar funding conditions can be contractionary. While dollar liquidity still supports growth during acute stress episodes in AEs, it has the opposite effect in normal times. In AEs, exchange-rate appreciation compensates holders of local-currency assets, eroding export competitiveness and lowering growth. In EMs, easier dollar access encourages shifts into local-currency assets, crowding out domestic liquidity and dampening activity.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"87 ","pages":"Article 103740"},"PeriodicalIF":1.5,"publicationDate":"2026-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146090626","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-24DOI: 10.1016/j.jmacro.2026.103739
Chak Hung Jack Cheng , William B. Hankins , Anna-Leigh Stone
This paper provides novel empirical evidence on the effects of a financial uncertainty shock on firm creation across the US states. Using state-level firm data between 1979 and 2019, we find that on average a one standard deviation financial uncertainty shock is associated with a 0.12 percentage point decline in the firm entry rate. Cross sectional regressions reveal that heterogeneity in industry composition and the existence and duration of right-to-work laws are an important source of transmission of a financial uncertainty shock to the states. In particular, a financial uncertainty shock is associated with larger declines in the firm entry rate in states with larger manufacturing and mining sectors and in states with a right-to-work law.
{"title":"The impact of financial uncertainty shocks on firm creation across US states","authors":"Chak Hung Jack Cheng , William B. Hankins , Anna-Leigh Stone","doi":"10.1016/j.jmacro.2026.103739","DOIUrl":"10.1016/j.jmacro.2026.103739","url":null,"abstract":"<div><div>This paper provides novel empirical evidence on the effects of a financial uncertainty shock on firm creation across the US states. Using state-level firm data between 1979 and 2019, we find that on average a one standard deviation financial uncertainty shock is associated with a 0.12 percentage point decline in the firm entry rate. Cross sectional regressions reveal that heterogeneity in industry composition and the existence and duration of right-to-work laws are an important source of transmission of a financial uncertainty shock to the states. In particular, a financial uncertainty shock is associated with larger declines in the firm entry rate in states with larger manufacturing and mining sectors and in states with a right-to-work law.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"87 ","pages":"Article 103739"},"PeriodicalIF":1.5,"publicationDate":"2026-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146090625","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-10DOI: 10.1016/j.jmacro.2026.103738
Mustafa Kilinc , Cengiz Tunc
This paper investigates the relevance of the “debt service channel” for external debt in developing countries, arguing that this channel exerts a distinct impact on economic activity beyond the effects of external debt levels. To characterize this mechanism, the paper first develops a small open economy real business cycle model featuring an external debt service mechanism. Specifically, the model incorporates a random maturity structure for external debt to demonstrate how debt burden shocks function as a distinct mechanism, independent of credit shocks. The impulse responses show that a rise in the debt service burden is associated with declines in employment, investment, consumption, and output, as economic agents are unable to fully smooth out these shocks due to prevailing budget constraints and risk premia. Empirical analysis for a large sample of developing countries covering the last five decades also produces supportive evidence. Namely, higher levels of external debt service lead to a contraction in output for an extended period, a finding that remains robust across various model specifications. Therefore, this paper establishes the significance of the “debt service channel” and shows its importance for external debt dynamics in developing countries.
{"title":"Debt service channel for external debt and growth in developing countries","authors":"Mustafa Kilinc , Cengiz Tunc","doi":"10.1016/j.jmacro.2026.103738","DOIUrl":"10.1016/j.jmacro.2026.103738","url":null,"abstract":"<div><div>This paper investigates the relevance of the “debt service channel” for external debt in developing countries, arguing that this channel exerts a distinct impact on economic activity beyond the effects of external debt levels. To characterize this mechanism, the paper first develops a small open economy real business cycle model featuring an external debt service mechanism. Specifically, the model incorporates a random maturity structure for external debt to demonstrate how debt burden shocks function as a distinct mechanism, independent of credit shocks. The impulse responses show that a rise in the debt service burden is associated with declines in employment, investment, consumption, and output, as economic agents are unable to fully smooth out these shocks due to prevailing budget constraints and risk premia. Empirical analysis for a large sample of developing countries covering the last five decades also produces supportive evidence. Namely, higher levels of external debt service lead to a contraction in output for an extended period, a finding that remains robust across various model specifications. Therefore, this paper establishes the significance of the “debt service channel” and shows its importance for external debt dynamics in developing countries.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"87 ","pages":"Article 103738"},"PeriodicalIF":1.5,"publicationDate":"2026-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145976226","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-19DOI: 10.1016/j.jmacro.2025.103737
Alok Kumar
Insufficient physical and human capital are major impediments to development and poverty reduction in low-income countries. Given the financial constraint, should the governments emphasize physical capital or human capital investment and what instruments should they use? This paper addresses these questions using a dynamic stochastic general equilibrium model with human capital and two-sectors: formal and informal. The model is estimated using data from India. Results demonstrate that investment subsidy is the most effective instrument in raising the GDP and aggregate welfare followed by government physical capital investment. However, both these policies mainly benefit the rich. The government investment in schooling and tuition subsidies targeted at poor are the most effective instruments for raising the employment income and welfare of poor. Using government physical capital investment in combination with either government schooling investment or tuition subsidy targeted at poor, the government can raise the GDP and income and welfare of both rich and poor.
{"title":"Human and physical capital: Welfare and income effects of government spending","authors":"Alok Kumar","doi":"10.1016/j.jmacro.2025.103737","DOIUrl":"10.1016/j.jmacro.2025.103737","url":null,"abstract":"<div><div>Insufficient physical and human capital are major impediments to development and poverty reduction in low-income countries. Given the financial constraint, should the governments emphasize physical capital or human capital investment and what instruments should they use? This paper addresses these questions using a dynamic stochastic general equilibrium model with human capital and two-sectors: formal and informal. The model is estimated using data from India. Results demonstrate that investment subsidy is the most effective instrument in raising the GDP and aggregate welfare followed by government physical capital investment. However, both these policies mainly benefit the rich. The government investment in schooling and tuition subsidies targeted at poor are the most effective instruments for raising the employment income and welfare of poor. Using government physical capital investment in combination with either government schooling investment or tuition subsidy targeted at poor, the government can raise the GDP and income and welfare of both rich and poor.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"87 ","pages":"Article 103737"},"PeriodicalIF":1.5,"publicationDate":"2025-12-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145839932","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-12DOI: 10.1016/j.jmacro.2025.103736
Zhengyang Chen
Why are supposedly exogenous monetary policy surprises, measured by changes in short-term financial contracts within short windows around FOMC announcements, partially predicted by pre-meeting economic and financial information? We propose a new explanation: the Federal Reserve targets economic variables by responding primarily to financial conditions while adopting a “wait-and-see” approach to recent economic data. When markets expect the Fed to target economic variables directly, this creates the predictable component of policy surprises. Using daily-frequency economic and financial data from 2000–2019, we find three pieces of supporting evidence: First, the previously documented strong predictors are reflected in financial markets and not in the Fed’s private information. Second, controlling for financial conditions, recent real economic surprises negatively predict policy surprises, which supports the “wait-and-see” hypothesis over a more aggressive response to economic news (Bauer and Swanson, 2023b). Third, financial conditions alone predict policy surprises as effectively as all other documented predictors combined.
{"title":"Demystifying monetary policy surprises: Fed response to financial conditions and wait and see for new economic data","authors":"Zhengyang Chen","doi":"10.1016/j.jmacro.2025.103736","DOIUrl":"10.1016/j.jmacro.2025.103736","url":null,"abstract":"<div><div>Why are supposedly exogenous monetary policy surprises, measured by changes in short-term financial contracts within short windows around FOMC announcements, partially predicted by pre-meeting economic and financial information? We propose a new explanation: the Federal Reserve targets economic variables by responding primarily to financial conditions while adopting a “wait-and-see” approach to recent economic data. When markets expect the Fed to target economic variables directly, this creates the predictable component of policy surprises. Using daily-frequency economic and financial data from 2000–2019, we find three pieces of supporting evidence: First, the previously documented strong predictors are reflected in financial markets and not in the Fed’s private information. Second, controlling for financial conditions, recent real economic surprises negatively predict policy surprises, which supports the “wait-and-see” hypothesis over a more aggressive response to economic news (<span><span>Bauer and Swanson, 2023b</span></span>). Third, financial conditions alone predict policy surprises as effectively as all other documented predictors combined.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"87 ","pages":"Article 103736"},"PeriodicalIF":1.5,"publicationDate":"2025-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145796879","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-24DOI: 10.1016/j.jmacro.2025.103727
Blaise Gnimassoun , Carl Grekou , Valérie Mignon
Premature deindustrialization in most emerging and developing economies is one of the most striking stylized facts of the recent decades. In this paper, we provide solid empirical evidence supporting that the choice of a fixed exchange rate regime accelerates this phenomenon. Relying on a panel of 146 developed, emerging, and developing countries over the 1974–2019 period, we show that fixed exchange rate regimes have had a negative, significant, and robust effect on the size of the manufacturing sector—developing countries being the most affected by the industrial cost of such a regime. Additional gravity model regressions show that the impact of fixed regimes passes through the trade channel. In particular, this regime has kept countries with low relative productivity in a state of structural dependence on imports of manufactured products to the detriment of the emergence of a strong local manufacturing sector.
{"title":"The industrial cost of fixed exchange rate regimes","authors":"Blaise Gnimassoun , Carl Grekou , Valérie Mignon","doi":"10.1016/j.jmacro.2025.103727","DOIUrl":"10.1016/j.jmacro.2025.103727","url":null,"abstract":"<div><div>Premature deindustrialization in most emerging and developing economies is one of the most striking stylized facts of the recent decades. In this paper, we provide solid empirical evidence supporting that the choice of a fixed exchange rate regime accelerates this phenomenon. Relying on a panel of 146 developed, emerging, and developing countries over the 1974–2019 period, we show that fixed exchange rate regimes have had a negative, significant, and robust effect on the size of the manufacturing sector—developing countries being the most affected by the industrial cost of such a regime. Additional gravity model regressions show that the impact of fixed regimes passes through the trade channel. In particular, this regime has kept countries with low relative productivity in a state of structural dependence on imports of manufactured products to the detriment of the emergence of a strong local manufacturing sector.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"87 ","pages":"Article 103727"},"PeriodicalIF":1.5,"publicationDate":"2025-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145624278","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-15DOI: 10.1016/j.jmacro.2025.103726
Christina E. Farhart , Ethan Struby
Using a unique, nationally representative survey from the 2022 midterm elections, we investigate the partisan divide in beliefs about inflation. Party identity is predictive of inflation forecasts, as well as stated beliefs about recent inflation and the Federal Reserve’s long-run inflation target. After conditioning on those two variables, the partisan gap in forecasts is about half of the unconditional average difference between Democrats and Republicans. We find that the difference in reported forecasts conditional on nowcasts and long-run beliefs is driven by respondents who have high levels of knowledge about politics and lower levels of (generalized) trust in others. Our findings are consistent with the literature in political psychology that examines the endorsement of conspiracy theories and political misinformation, and imply a sizable portion of the partisan divide in inflation forecasts is attributable to strategic responses to forecast surveys.
{"title":"Inflation expectations and political polarization: Evidence from the cooperative election study","authors":"Christina E. Farhart , Ethan Struby","doi":"10.1016/j.jmacro.2025.103726","DOIUrl":"10.1016/j.jmacro.2025.103726","url":null,"abstract":"<div><div>Using a unique, nationally representative survey from the 2022 midterm elections, we investigate the partisan divide in beliefs about inflation. Party identity is predictive of inflation forecasts, as well as stated beliefs about recent inflation and the Federal Reserve’s long-run inflation target. After conditioning on those two variables, the partisan gap in forecasts is about half of the unconditional average difference between Democrats and Republicans. We find that the difference in reported forecasts conditional on nowcasts and long-run beliefs is driven by respondents who have high levels of knowledge about politics and lower levels of (generalized) trust in others. Our findings are consistent with the literature in political psychology that examines the endorsement of conspiracy theories and political misinformation, and imply a sizable portion of the partisan divide in inflation forecasts is attributable to strategic responses to forecast surveys.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"87 ","pages":"Article 103726"},"PeriodicalIF":1.5,"publicationDate":"2025-11-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145555346","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-11DOI: 10.1016/j.jmacro.2025.103728
Ilya Gulenkov
A remarkably protracted surge in inflation in the U.S. has had a profound impact on the price- and wage-setting behavior. These changes suggest that the economy could have entered a regime characterized by higher trend inflation. While the impact of trend inflation on monetary policy effectiveness is well-studied, the effects on fiscal policy transmission has been largely overlooked. This study analyzes the fiscal transmission under different inflation regimes. The empirical analysis using state-dependent local projections reveals that in the post-WWII U.S. history fiscal multipliers in a high-inflation regime have been larger. This effect is driven by a crowding-in of consumption, which does not happen in the low-inflation state. We rationalize our findings withing a Markov-switching New Keynesian model with endogenous price stickiness and non-separable preferences. The model demonstrates that when different degree of monetary accommodation interacts with the switching mechanism, consumption is crowded-out in a low-inflation regime and crowded-in when trend inflation is high.
{"title":"Fiscal multipliers, trend inflation, and endogenous price stickiness: Evidence from the U.S.","authors":"Ilya Gulenkov","doi":"10.1016/j.jmacro.2025.103728","DOIUrl":"10.1016/j.jmacro.2025.103728","url":null,"abstract":"<div><div>A remarkably protracted surge in inflation in the U.S. has had a profound impact on the price- and wage-setting behavior. These changes suggest that the economy could have entered a regime characterized by higher trend inflation. While the impact of trend inflation on monetary policy effectiveness is well-studied, the effects on fiscal policy transmission has been largely overlooked. This study analyzes the fiscal transmission under different inflation regimes. The empirical analysis using state-dependent local projections reveals that in the post-WWII U.S. history fiscal multipliers in a high-inflation regime have been larger. This effect is driven by a crowding-in of consumption, which does not happen in the low-inflation state. We rationalize our findings withing a Markov-switching New Keynesian model with endogenous price stickiness and non-separable preferences. The model demonstrates that when different degree of monetary accommodation interacts with the switching mechanism, consumption is crowded-out in a low-inflation regime and crowded-in when trend inflation is high.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"86 ","pages":"Article 103728"},"PeriodicalIF":1.5,"publicationDate":"2025-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145519739","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-23DOI: 10.1016/j.jmacro.2025.103725
Tomasz Łyziak , Michael Pedersen , Ewa Stanisławska
This paper contributes to the empirical literature on the formation of inflation expectations among U.S. consumers by examining the extent to which individuals are influenced by local price fluctuations when reporting their short-term inflation expectations. Using individual-level survey data and a learning-from-experience framework, the analysis shows that expectations are shaped not only by national inflation but also by local inflation experiences. This result, confirmed using inflation data from both Census regions and metropolitan areas, is robust across alternative model specifications and estimation strategies. Interestingly, the influence of local inflation is strongest among first-time survey respondents and diminishes with survey tenure. This tenure effect indicates that expectation formation evolves as consumers become more familiar with the survey, potentially reflecting increased attention to broader economic information. Overall, we identify an additional driver of consumer inflation expectations related to local inflation developments and largely absent from the previous literature that should be controlled for in empirical models of expectation formation.
{"title":"Consumer inflation expectations and local price changes: Learning from experience","authors":"Tomasz Łyziak , Michael Pedersen , Ewa Stanisławska","doi":"10.1016/j.jmacro.2025.103725","DOIUrl":"10.1016/j.jmacro.2025.103725","url":null,"abstract":"<div><div>This paper contributes to the empirical literature on the formation of inflation expectations among U.S. consumers by examining the extent to which individuals are influenced by local price fluctuations when reporting their short-term inflation expectations. Using individual-level survey data and a learning-from-experience framework, the analysis shows that expectations are shaped not only by national inflation but also by local inflation experiences. This result, confirmed using inflation data from both Census regions and metropolitan areas, is robust across alternative model specifications and estimation strategies. Interestingly, the influence of local inflation is strongest among first-time survey respondents and diminishes with survey tenure. This tenure effect indicates that expectation formation evolves as consumers become more familiar with the survey, potentially reflecting increased attention to broader economic information. Overall, we identify an additional driver of consumer inflation expectations related to local inflation developments and largely absent from the previous literature that should be controlled for in empirical models of expectation formation.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"86 ","pages":"Article 103725"},"PeriodicalIF":1.5,"publicationDate":"2025-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145519740","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-13DOI: 10.1016/j.jmacro.2025.103724
Yacouba Coulibaly , Askandarou Cheik Diallo
This paper investigates the impact of fiscal rule adoption on banking system stability in developing countries. Using a panel of 62 developing economies over the period 1990–2020, we assess whether adopting a fiscal rule contributes to reducing the level of bank nonperforming loans, a key indicator of banking vulnerability. The analysis relies on entropy balancing to ensure covariates balance between treated and control groups. Results indicate that the adoption of fiscal rules significantly reduces the ratio of nonperforming loans, with an average treatment effect of approximately 0.85 percentage points. The study identifies multiple transmission channels—sovereign credit ratings, income inequality reduction, and macroeconomic stabilization—through which fiscal rules strengthen banking stability. Heterogeneity analysis reveals that the effect varies by the type and duration of the rule and by structural financial characteristics. This research contributes to the literature by extending the role of fiscal rules beyond debt and deficit control, framing them as institutional anchors for financial stability in fiscally and economically vulnerable contexts.
{"title":"Can fiscal rules improve banking system stability in developing countries?","authors":"Yacouba Coulibaly , Askandarou Cheik Diallo","doi":"10.1016/j.jmacro.2025.103724","DOIUrl":"10.1016/j.jmacro.2025.103724","url":null,"abstract":"<div><div>This paper investigates the impact of fiscal rule adoption on banking system stability in developing countries. Using a panel of 62 developing economies over the period 1990–2020, we assess whether adopting a fiscal rule contributes to reducing the level of bank nonperforming loans, a key indicator of banking vulnerability. The analysis relies on entropy balancing to ensure covariates balance between treated and control groups. Results indicate that the adoption of fiscal rules significantly reduces the ratio of nonperforming loans, with an average treatment effect of approximately 0.85 percentage points. The study identifies multiple transmission channels—sovereign credit ratings, income inequality reduction, and macroeconomic stabilization—through which fiscal rules strengthen banking stability. Heterogeneity analysis reveals that the effect varies by the type and duration of the rule and by structural financial characteristics. This research contributes to the literature by extending the role of fiscal rules beyond debt and deficit control, framing them as institutional anchors for financial stability in fiscally and economically vulnerable contexts.</div></div>","PeriodicalId":47863,"journal":{"name":"Journal of Macroeconomics","volume":"86 ","pages":"Article 103724"},"PeriodicalIF":1.5,"publicationDate":"2025-10-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145362058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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