Fiscal Spillovers in the Euro Area

34 Pages Posted: 28 Oct 2011

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Alessandro Girardi

National Institute of Statistics (ISTAT)

Date Written: October 1, 2011

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.

Keywords: Global VAR methodology, fiscal spillovers, euro area, public debt

JEL Classification: C32, E62, F42, H63

Suggested Citation

Caporale, Guglielmo Maria and Girardi, Alessandro, Fiscal Spillovers in the Euro Area (October 1, 2011). DIW Berlin Discussion Paper No. 1164, Available at SSRN: https://ssrn.com/abstract=1950591 or http://dx.doi.org/10.2139/ssrn.1950591

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
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CESifo (Center for Economic Studies and Ifo Institute)

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German Institute for Economic Research (DIW Berlin) ( email )

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Berlin, 10117
Germany

Alessandro Girardi

National Institute of Statistics (ISTAT) ( email )

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00184 Rome, 0185
Italy

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