Fiscal Multiplier Heterogeneity Versus Monetary Transmission Asymmetry: A Cross-Regime Evaluation of Stabilisation Policy Efficacy in Emerging Market Economies Under Debt Distress

Abstract

This study undertakes a rigorous comparative evaluation of fiscal multiplier dynamics and monetary transmission asymmetries as competing stabilisation instruments in emerging market economies (EMEs) exhibiting elevated sovereign debt-to-GDP ratios. Employing a panel smooth transition regression (PSTR) framework augmented with local projection methods across 34 EMEs over the period 2000–2023, we identify pronounced non-linearities in both policy channels contingent upon debt-regime thresholds, exchange rate flexibility, and financial openness indices. Results indicate that fiscal multipliers contract significantly—falling below unity—once sovereign debt surpasses 65% of GDP, whereas monetary transmission efficacy diminishes under fixed exchange rate arrangements and shallow domestic capital markets. The findings carry immediate implications for counter-cyclical policy design and multilateral fiscal surveillance frameworks operative in 2024–2026 consolidation cycles.