Reproducibility package for The Sovereign Spread Compressing Effect of Fiscal Rules during Global Crises

2024

Get Reproducibility Package

Reference ID

RR_WLD_2024_84-v03

DOI

https://doi.org/10.60572/y1rt-xm29

Author(s)

Ergys Islamaj, Agustin Samano, Scott Sommers

Collections

World Bank Policy Research Working Papers

Metadata

JSON

Created on

Mar 11, 2024

Last modified

Apr 01, 2024

Overview

Abstract

Do fiscal rules help suppress sovereign spreads during periods of global financial volatility? Yes! This paper examines whether fiscal rules contribute to mitigating sovereign spreads in emerging markets and developing economies during periods of heightened financial volatility worldwide. It finds that the presence of fiscal rules is statistically significantly associated with reduced sovereign spreads in the aftermath of the 2020 global recession – about 350 basis points lower on average. Interestingly, this correlation persists even when nations deviate from these rules, indicating an expectation of post-crisis compliance after the crisis. The study shows that deviations from fiscal rules are typically short-lived, with fiscal balance rules reinstated within 3.5 years. Robustness checks, including controls for institutional quality, fiscal rule strength, and global and regional factors confirms these results. Overall, the findings suggest that fiscal rules can help emerging markets and developing economies reduce borrowing costs during episodes of global financial stress.

Reproducibility Package

Scripts

Readme Get Reproducibility Package

Link: https://reproducibility.worldbank.org/index.php/catalog/111/download/289/README.pdf

Reproducibility package (partial data and code) for The Sovereign Spread Compressing Effect of Fiscal Rules during Global Crises

Title

Reproducibility package (partial data and code) for The Sovereign Spread Compressing Effect of Fiscal Rules during Global Crises

Date

2024-03

Description

The code in this folder generates the tables and figures in the paper "The Sovereign Spread Compressing Effect of Fiscal Rules during Global Crises” by Ergys Islamaj, Agustin Samano, Scott Sommers

Dependencies

All dependencies are stored in the ado folder.

Instructions

See README in the reproducibility package.

Notes

Computational reproducibility verified by Development Impact (DIME) Analytics team, World Bank.

Source code repository

Repository name	URI
Reproducible Research Repository (World Bank)	https://reproducibility.worldbank.org

Software

Stata

Name

Stata

Version

Reproducibility

Technology environment

Paper exhibits were attempted to be reproduced in a computer with the following specifications:
– OS: Windows 11 Enterprise
– Processor: Intel(R) Core(TM) i5-1145G7 CPU @ 2.60GHz
– Memory available: 15.7 GB
– Software version: Stata version 18

Technology requirements

~10 min runtime

Reproduction instructions

To successfully replicate this package, new users must first download the necessary data files not included in this reproducibility package. These files should then be placed in the specified folder. Instructions for downloading the data, as well as for setting up the correct file paths and names, are provided in the data entry documentation. After that, users need to update the directory path in the Main do file.

Data

Datasets

IMF Fiscal Rule Dataset

Name

IMF Fiscal Rule Dataset

Note

Source: International Monetary Fund. To replicate, the users must follow the link below and download the dataset which should download with the name "IMF Fiscal Rules Dataset 1985 - 2021 - January 2022 rev Dec 21.xlsx". The "Rules" sheet should be saved separately as a .csv file named "Fiscal_Rules_All_Countries_Flagged_0609_2022.csv" in the folder "Figures_and_Calcs_Section_2_1" and "Files for Reproduction - GFC Spreads". This file only contains a portion of the variables in the original file, please refer to the README to see the specific variables. In addition, the same sheet "Rules" sheet should be saved separately as a .csv file and as "IMF Fiscal Rule Dataset - Base for Index.csv" in the "Files for Reproduction - Fiscal Rule Index folder." More information on the variables included and their names can be found in the README file.

Access policy

Public but does not allow republication, therefore it is not included in the package.

Data URL

https://www.imf.org/external/datamapper/fiscalrules/IMF%20Fiscal%20Rules%20Dataset%201985%20-%202021%20-%20January%202022%20rev%20Dec%2021.xlsx

IMF Fiscal Councils Dataset

Name

IMF Fiscal Councils Dataset

Note

Source: International Monetary Fund. To replicate, the users must follow the link below which will download the dataset "imf-fiscal-council-dataset-january-1-312022.xlsx". The "Data" sheet should be saved separately as a .csv file named "IMF Fiscal Council Dataset - Base for Index" in the folder "Files for Reproduction - Fiscal Rule Index". More information on the variables included and their names can be found in the README file.

Access policy

Public but does not allow republication, therefore it is not included in the package.

Data URL

https://www.imf.org/-/media/Files/Data/fiscal-council-docs/imf-fiscal-council-dataset-january-1-312022.ashx

World Economic Outlook Database

Name

World Economic Outlook Database

Note

Source: International Monetary Fund. To replicate this users must download the full World Economic Outlook Database (by countries) from the link below and save it in the reproducibility package as "WEOApr2022all.xlsx" and copied into the folders: Files for "Reproduction - Covid Spreads", "Spreads Data - Covid Era", and "Figures_and_Calcs_Section_2_1".

Access policy

Public but does not allow republication, therefore it is not included in the package.

Data URL

https://www.imf.org/en/Publications/WEO/weo-database/2022/October/download-entire-database

Cross-Country Database of Fiscal Space

Name

Cross-Country Database of Fiscal Space

Note

Source: Kose, M. Ayhan, Sergio Kurlat, Franziska Ohnsorge, and Naotaka Sugawara. 2022. "A Cross-Country Database of Fiscal Space." Journal of International Money and Finance 128 (November): 102682. Placed in the folders: "Files for Reproduction - GFC Spreads", and "Files for Reproduction - Covid Spreads" as downloaded in its dta format.

Access policy

Published with package.

Data URL

https://www.worldbank.org/en/research/brief/fiscal-space

Oxford COVID-19 Government Response Tracker Stringency Index

Name

Oxford COVID-19 Government Response Tracker Stringency Index

Note

Source: Hale, T., Angrist, N., Goldszmidt, R. et al. A global panel database of pandemic policies (Oxford COVID-19 Government Response Tracker). Nat Hum Behav 5, 529–538 (2021). https://doi.org/10.1038/s41562-021-01079-8 Placed in the folder: "Files for Reproduction - Covid Spreads"

Access policy

Published with package

Data URL

https://ourworldindata.org/covid-stringency-index, , https://covid.ourworldindata.org/data/owid-covid-data.csv

World Bank Worldwide Governance Indicators

Name

World Bank Worldwide Governance Indicators

Note

Source: Daniel Kaufmann and Aart Kraay (2023). Worldwide Governance Indicators, 2023 Update (www.govindicators.org). This data file is part of the reproducibility package; you can also obtain the file in dta format through the provided link. Once downloaded, the file, named "wgidataset," should be saved in two specific folders: "Files for Reproduction - Covid Spreads" and "Files for Reproduction - GFC Spreads." Additionally, there's a modified version labeled "govt_effectiveness_base." This version retains only the variables "ger" (governance effectiveness rating), "year," "countryname," and "code" for the years 2019, 2020, and 2021 and is saved in the same folders.

Access policy

Published with package

Data URL

https://www.worldbank.org/en/publication/worldwide-governance-indicators

This Time is Different: Eight Centuries of Financial Folly

Name

This Time is Different: Eight Centuries of Financial Folly

Note

Source: Princeton: Princeton University Press, 2009. Placed in the folder: "Files for Reproduction - Covid Spreads"

Access policy

Published with package

Data URL

https://carmenreinhart.com/this-time-is-different/

J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) and CEMBI IG+ index

Name

J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) and CEMBI IG+ index

Note

For World Bank Staff: To replicate this analysis, World Bank staff must follow the link provided below and request the CEMBI and EMBI datasets via the registration link. After obtaining the data, remove the first three rows containing the source information at the top and save the cleaned files in the "Files for Reproduction - GFC Spreads" and "Files for Reproduction - Covid Spreads" folders as "CEMBI_all_countries_clean.csv" and "EMBI_all_countries_clean.csv", respectively. For Non-World Bank Staff: If you are not affiliated with the World Bank, you might be able to request the data directly from the provider through the second link below. Once you have received the data, please follow the same steps.

Access policy

Restricted

Data URL

https://imf.primo.exlibrisgroup.com/discovery/fulldisplay?vid=01TIMF_INST:Shared&tab=Everything&docid=alma991004368089703116&searchScope=All_Resources&context=L&lang=en, https://www.jpmorgan.com/insights/global-research/index-research/indices-product

World Bank Lending Groups data

Name

World Bank Lending Groups data

Note

Source: World Bank. Authors' calculations placed in the folder: "Figures_and_Calcs_Section_2_1"

Access policy

Published with package

Data URL

https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups

Reinhart Debt Default Dummies

Name

Reinhart Debt Default Dummies

Note

Source: Carmen M. Reinhart and Kenneth S. Rogoff Compiled by the authors in two datasets named Reinhart_External_Debt_Default_Dummies_Formatted.csv", "Reinhart_Domestic_Debt_Default_Dummies_Formatted.csv". Placed in the folders: "Files for Reproduction - GFC Spreads", and "Files for Reproduction - Covid Spreads"

Access policy

Published with package

Data URL

https://carmenreinhart.com/this-time-is-different/

Fed and ECB Policy Decision dates

Name

Fed and ECB Policy Decision dates

Note

Source: Federal Reserve and European Central Bank. Compiled by the authors in two datasets named "Fed_ECB_Policy_Dates.csv", and "Fed_ECB_Policy_Dates_2_Day_Window.csv". Placed in the folders: "Files for Reproduction - GFC Spreads", and "Files for Reproduction - Covid Spreads"

Access policy

Published with package

Data URL

https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm and https://www.ecb.europa.eu/press/govcdec/mopo/html/index.en.html

Data statement

Most of the data in this analysis is available to the public. However, certain datasets cannot be redistributed due to licensing constraints. An exception within this research is the JP Morgan data, which, while not publicly accessible, is available exclusively for World Bank staff through the World Bank Library. Non-World Bank staff interested in this dataset might be able to obtain it directly through JP Morgan, which may involve a fee. Please refer to the relevant data entry and the README file for detailed information.

The data entries provide a comprehensive guideline on accessing public datasets that cannot be shared further. This includes instructions for their download and how to organize them in the designated directories to enable complete replication of the study. For any questions related to the data sources and the reproducibility verification please get in touch with one of the authors at: somme450@umn.edu

Description

Output

The Sovereign Spread Compressing Effect of Fiscal Rules during Global Crises

Type

Working Paper

Title

The Sovereign Spread Compressing Effect of Fiscal Rules during Global Crises

Authors

Ergys Islamaj, Agustin Samano, and Scott Sommers

Description

Policy Research Working Paper (PRWP) 10741

URL

http://documents.worldbank.org/curated/en/099249103282432838/IDU15cfa7f6d1d6ab1406518cfe157ccc6a3202a

DOI

https://doi.org/10.1596/1813-9450-10741

Authors

Author	Affiliation	Email
Ergys Islamaj	World Bank	eislamaj@worldbank.org
Agustin Samano	World Bank	asamanopenaloza@worldbank.org
Scott Sommers	University of Minnesota	somme450@umn.edu

Date of production

2024-03

Scope and coverage

Geographic locations

Location	Code
World	WLD

Keywords

fiscal rules sovereign spreads Covid-19 pandemic

Disclaimer

The materials in the reproducibility packages are distributed as they were prepared by the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this event do not necessarily reflect the views of the World Bank, the Executive Directors of the World Bank, or the governments they represent. The World Bank does not guarantee the accuracy of the materials included in the reproducibility package.

Access and rights

License

Name	URI
Modified BSD3	https://opensource.org/license/bsd-3-clause/

Contacts

Name	Affiliation	Email
Scott Sommers	University of Minnesota	somme450@umn.edu
Reproducibility WBG	World Bank	reproducibility@worldbank.org

Information on metadata

Producers

Name	Abbreviation	Affiliation	Role
Reproducibility WBG	DIME	World Bank - Development Impact Department	Verification and preparation of metadata

Date of Production

2024-02-27

Document version

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