Fiscal Spillovers in the Euro Area
Guglielmo Maria Caporale
London South Bank University; Brunel University - Brunel Business School; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
National Institute of Statistics (ISTAT)
October 1, 2011
DIW Berlin Discussion Paper No. 1164
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, H63working papers series
Date posted: October 28, 2011
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