Fiscal Policy Events and Interest Rate Swap Spreads: Evidence from the EU

Afonso, António; Strauch, Rolf

doi:10.2139/ssrn.498382

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Fiscal Policy Events and Interest Rate Swap Spreads: Evidence from the EU

53 Pages Posted: 13 Feb 2004

See all articles by António Afonso

António Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa; REM - Research in Economics and Mathematics

Rolf Strauch

European Central Bank (ECB)

There are 2 versions of this paper

Date Written: February 2004

Abstract

In this paper we assess the importance given in capital markets to the credibility of the European fiscal framework. We evaluate to which extent relevant fiscal policy events taking place in the course of 2002 produced a reaction in the long-term bond segment of the capital markets. Firstly, we identify the fiscal policy events and qualitatively assess the views of capital market participants. Secondly, we estimate the impact of these fiscal events on the interest rate swap spreads, which is our measure for the risk premium. According to our results the reaction of swap spreads, where it turned out to be significant, has been mostly around five basis points or less.

Keywords: Fiscal policy events, Stability and Growth Pact, interest rate swap spreads

JEL Classification: C22, G15, H30

Suggested Citation: Suggested Citation

Afonso, António and Strauch, Rolf, Fiscal Policy Events and Interest Rate Swap Spreads: Evidence from the EU (February 2004). Available at SSRN: https://ssrn.com/abstract=498382 or http://dx.doi.org/10.2139/ssrn.498382