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

Deutsche Bundesbank Discussion Paper No. 40/2004

44 Pages Posted: 16 Jan 2005

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: December 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 union.

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

JEL Classification: C33, E43, E62, H62

Suggested Citation

Heppke-Falk, Kirsten and Hüfner, Felix P., Expected Budget Deficits and Interest Rate Swap Spreads - Evidence for France, Germany and Italy (December 2004). Deutsche Bundesbank Discussion Paper No. 40/2004, Available at SSRN: https://ssrn.com/abstract=649222 or http://dx.doi.org/10.2139/ssrn.649222

Kirsten Heppke-Falk

Deutsche Bundesbank ( email )

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

Felix P. Hüfner (Contact Author)

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

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
399
Abstract Views
2,812
rank
77,480
PlumX Metrics