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PRWP

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
  • Project Description
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  • Overview
  • Reproducibility Package
  • Description
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  • Citation
  • 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
    18

    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

    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

    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

    1

    Citation

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