Title: Fiscal policy and stock market returns volatility: the case of Indonesia

Authors: Haryo Kuncoro

Addresses: Faculty of Economics, State University of Jakarta, Rawamangun Muka Jakarta Timur 13220, Jakarta, Indonesia

Abstract: This paper separately studies the impact of different kind of fiscal policy on the stock return stabilisation in the case of Indonesia. Using quarterly data over the period 2001-2013, we obtained that the discretionary and automatic stabilisation fiscal policy tend to induce the stock returns volatility. While the credible debt rule policy leads to decrease the volatility of stock returns, the deficit rule policy is found to be non-credible and does not have any effect. Accordingly, the lower ratio of government expenditure to GDP along with improving commitment tightly to the planned deficit ratio is a good signal for stabilising financial market.

Keywords: automatic stabiliser; discretionary fiscal policy; deficit rule; debt rule; stock returns volatility.

DOI: 10.1504/IJEPEE.2017.085286

International Journal of Economic Policy in Emerging Economies, 2017 Vol.10 No.2, pp.153 - 170

Received: 06 Jun 2015
Accepted: 28 Aug 2015

Published online: 03 Jul 2017 *

Full-text access for editors Access for subscribers Purchase this article Comment on this article