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

Posted: 11 Jun 2007

See all articles by António Afonso

António Afonso

Technical University of Lisbon (UTL) - Department of Economics; 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)

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Abstract

This paper assesses 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 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 risk premium. According to our results the reaction of swap spreads, when significant, have 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

Afonso, António and Strauch, Rolf, Fiscal Policy Events and Interest Rate Swap Spreads: Evidence from the EU. Journal of International Financial Markets, Institutions and Money, Vol. 17, No. 3, pp. 261-276, 2007, Available at SSRN: https://ssrn.com/abstract=701124

António Afonso (Contact Author)

Technical University of Lisbon (UTL) - Department of Economics ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://www.iseg.ulisboa.pt/aquila/homepage/aafonso/research

UECE (Research Unit on Complexity and Economics) ( email )

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Lisbon, 1249-078
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HOME PAGE: http://uece.rc.iseg.ulisboa.pt/

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

REM - Research in Economics and Mathematics ( email )

ISEG, Universidade de Lisboa
Rua Miguel Lupi, 20
Lisboa, 1249-078
Portugal

HOME PAGE: http://rem.rc.iseg.ulisboa.pt/

Rolf Strauch

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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