Expected Budget Deficits and Interest Rate Swap Spreads - Evidence for France, Germany and Italy

44 Pages Posted: 8 Jun 2016

See all articles by Kirsten Heppke-Falk

Kirsten Heppke-Falk

Deutsche Bundesbank

Felix P. Hüfner

Organization for Economic Co-Operation and Development (OECD)

Multiple version iconThere are 2 versions of this paper

Date Written: 2004

Abstract

This study analyses whether expected budget deficits have an impact on interest rate swap spreads in France, Germany and Italy. We use monthly deficit forecasts from financial market participants to take the forward-looking behaviour of financial markets into account. Results of a SUR estimation show no significant impact of expected deficits on swap spreads over the whole sample period (1994-2004). However, we find an increase in market discipline for Germany and France since the signing of the Stability and Growth Pact, and for Germany also since the start of European monetary

Keywords: Budget deficits, interest rate swap spreads, EMU, Stability and Growth Pact

JEL Classification: E43, H62, E62, C33

Suggested Citation

Heppke-Falk, Kirsten and Hüfner, Felix P., Expected Budget Deficits and Interest Rate Swap Spreads - Evidence for France, Germany and Italy (2004). Bundesbank Series 1 Discussion Paper No. 2004,40, Available at SSRN: https://ssrn.com/abstract=2785085

Kirsten Heppke-Falk (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Felix P. Hüfner

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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