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Fiscal Spillovers in the Euro AreaGuglielmo Maria CaporaleLondon South Bank University; Brunel University - Brunel Business School; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Alessandro GirardiNational Institute of Statistics (ISTAT) October 1, 2011 DIW Berlin Discussion Paper No. 1164 Abstract: This paper analyses the dynamic effects of fiscal imbalances in a given EMU member state on the borrowing costs of other countries in the euro area. The estimation of a multivariate, multi-country time series model (specifically a Global VAR, or GVAR) using quarterly data for the EMU period suggests that euro-denominated government yields are strongly linked with each other. However, financial markets seem to be able to discriminate among different issuers. Consequently, fiscal imbalances in Italy and in other peripheral countries should be closely monitored by their EMU partners and the European institutions.
Number of Pages in PDF File: 34 Keywords: Global VAR methodology, fiscal spillovers, euro area, public debt JEL Classification: C32, E62, F42, H63 working papers seriesDate posted: October 28, 2011Suggested CitationContact Information
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