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The authors estimate the multiplier effect of government public infrastructure investment in Spain. This paper aims to use annual data of the 17 Spanish autonomous communities for the 1980–2016 period.

The authors use dynamic acyclic graphs and the heterogeneous panel structural vector autoregressive (P-SVAR) method of Pedroni (2013). This method is robust to cross-sectional heterogeneity and dependence, which are present in the data.

The findings suggest that an increase in the level of government public infrastructure investment generates a positive and persistent effect on the level of output. Five years after the fiscal expansion, the multiplier effects of government public infrastructure investment reach values above one. This confirms that government public infrastructure investment expansions have Keynesian effects. The authors also find that the multiplier effects differ between autonomous communities with above-average and below-average GDP per capita.

To the best of the authors’ knowledge, no research uses dynamic acyclic graphs and heterogeneous P-SVAR techniques to estimate fiscal multipliers of government public investment in Spain by using subnational data.

Might the impact of the financial stress on exchange markets be asymmetric and exposed to regime changes? Departing from the existing literature, highlighting that the domestic and foreign financial stress in terms of money market have substantial effects on exchange market, this paper aims to investigate the impacts of the bond yield spreads of three emerging countries (Mexico, Russia, and South Korea) on their exchange market pressure indices using monthly observations for the period 2010:01–2019:12. Additionally, the paper analyses the impact of bond yield spread of the US on the exchange market pressure indices of the three mentioned emerging countries. The authors hypothesized whether the negative and positive changes in the bond yield spreads have varying effects on exchange market pressure indices.

To address the research question, we measure the bond yield spread of the selected countries by using the interest rate spread between 10-year and 3-month treasury bills. At the same time, the exchange market pressure index is proxied by the index introduced by Desai et al. (2017). We base the empirical analysis on nonlinear vector autoregression (VAR) models and an asymmetric quantile-based approach.

The results of the impulse response functions indicate that increases/decreases in the bond yield spreads of Mexico, Russia and South Korea raise/lower their exchange market pressure, and the effects of shocks in the bond yield spreads of the US also lead to depreciation/appreciation pressures in the local currencies of the emerging countries. The quantile connectedness analysis, which allows for the role of regimes, reveals that the weights of the domestic and foreign bond yield spread in explaining variations of exchange market pressure indices are higher when exchange market pressure indices are not in a normal regime, indicating the role of extreme development conditions in the exchange market. The quantile regression model underlines that an increase in the domestic bond yield spread leads to a rise in its exchange market pressure index during all exchange market pressure periods in Mexico, and the relevant effects are valid during periods of high exchange market pressure in Russia. Our results also show that Russia differs from Mexico and South Korea in terms of the factors influencing the demand for domestic currency, and we have demonstrated the role of domestic macroeconomic and financial conditions in surpassing the effects of US financial stress. More specifically, the impacts of the domestic and foreign financial stress vary across regimes and are asymmetric.

This study enriches the literature on factors affecting the exchange market pressure of emerging countries. The results have significant economic implications for policymakers, indicating that the exchange market pressure index may trigger a financial crisis and economic recession.