Euro Bonds: In Search of Financial Spillovers
Universita Degli Studio di Trento Discussion Paper No. 2
62 Pages Posted: 20 Jan 2005
Date Written: January 2005
Abstract
The paper investigates the empirical relevance of the negative financial spillovers hypothesis according to which fiscal imbalances in one EMU member country bid up the interest rate faced by all other participants in the currency union. This idea questions the ability of financial markets to correctly price various types of risk now that the elimination of exchange rate fluctuations and the rapid integration of national government bond markets have made securities issued by different European governments closer substitutes. The paper takes an eclectic approach and tackles the issue from different angles, reviewing historical episodes, testing the Ricardian equivalence hypothesis in Europe as a whole and finally analyzing the impact of domestic and foreign fiscal variables on European bond yields. Despite the strong comovements displayed by European interest rates, empirical evidence does not support the idea that fiscal variables are a key determinant of these interrelations.
Keywords: Spillovers, Stability and Growth Pact, EMU, government bonds
JEL Classification: F36, F42, G15
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Sovereign Risk Premia in the European Government Bond Market
By Kerstin Bernoth, Jürgen Von Hagen, ...
-
Sovereign Risk Premia in the European Bond Market
By Kerstin Bernoth, Ludger Schuknecht, ...
-
Fiscal Policy Events and Interest Rate Swap Spreads: Evidence from the EU
By António Afonso and Rolf Strauch
-
High Yields: The Spread on German Interest Rates
By Carlo A. Favero, Francesco Giavazzi, ...
-
High Yields: The Spread on German Interest Rates
By Carlo A. Favero, Francesco Giavazzi, ...
-
Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries
By Silvia Ardagna, Francesco Caselli, ...
-
Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries
By Silvia Ardagna, Francesco Caselli, ...
-
Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries
By Silvia Ardagna, Francesco Caselli, ...