Policy Credibility and Sovereign Credit - the Case of New EU Member States

31 Pages Posted: 12 Jan 2007

See all articles by David Hauner

David Hauner

International Monetary Fund (IMF) - African Department

Jiri Jonas

International Monetary Fund (IMF)

Manmohan Kumar

International Monetary Fund (IMF) - Research Department

Date Written: Janurary 2007

Abstract

References to policy credibility, particularly with regard to fiscal policy, are ubiquitous in both economic literature and financial markets, even though it is not directly observable. The case of the EU new member states (NMS) - emerging markets joining a supranational entity that is generally considered to have higher policy credibility - provides a unique experiment to assess the effects of credibility on sovereign credit. This paper examines the impact of EU accession on three key variables that can reflect in varying degrees policy credibility: sovereign ratings, foreign currency spreads, and local currency yields. The results suggest that the NMS appear to have enjoyed higher credibility compared to their peers.

Keywords: Fiscal policy, Europe, European Union, Credit, Currencies, Foreign exchange, Economic models

JEL Classification: G12, H3, H6

Suggested Citation

Hauner, David and Jonas, Jiri and Kumar, Manmohan, Policy Credibility and Sovereign Credit - the Case of New EU Member States (Janurary 2007). IMF Working Paper No. 07/01. Available at SSRN: https://ssrn.com/abstract=956766

David Hauner (Contact Author)

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Jiri Jonas

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Manmohan Kumar

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7771 (Phone)
202-589-7771 (Fax)

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