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The asymmetric impact of the pandemic crisis on interest rates on public debt in the Eurozone

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  • Carnazza, Giovanni
  • Liberati, Paolo

Abstract

The outbreak of Covid-19 has played the role of a ‘game changer’ in the way countries of the Eurozone have faced the economic consequences of the pandemic crisis. This paper investigates what has happened to the interest rates of the sovereign bond in selected countries of the Eurozone during 2020. While the pandemic crisis can be interpreted as a symmetric shock, we found some important asymmetric consequences both in the sovereign bond market and the credit default swap market. Even though the European Central Bank (ECB) has played a fundamental role in easening tensions, especially with the announce of the Pandemic Emergency Purchase Programme (PEPP), countries with a higher pre-Covid level of the debt-to-GDP ratio have been found to undergo a significant jump in interest rates and a greater perceived risks of default. Important policies implications emerge in relation to the future role of the ECB.

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  • Carnazza, Giovanni & Liberati, Paolo, 2021. "The asymmetric impact of the pandemic crisis on interest rates on public debt in the Eurozone," Journal of Policy Modeling, Elsevier, vol. 43(3), pages 521-542.
    • Handle: RePEc:eee:jpolmo:v:43:y:2021:i:3:p:521-542
    DOI: 10.1016/j.jpolmod.2021.04.001
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    Cited by:

    1. Corina-Florentina Scarlat (Mihai), 2022. "The Evolution And Sustainability Of Public Debt In The E.U. Member States," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 115-127, June.
    2. Caravaggio, Nicola & Carnazza, Giovanni, 2022. "The Italian nominal interest rate conundrum: A problem of growth or public finance?," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 313-326.
    3. Massimo Amato & Everardo Belloni & Paolo Falbo & Lucio Gobbi, 2021. "Europe, public debts, and safe assets: the scope for a European Debt Agency," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 823-861, October.
    4. Shami, Labib & Lazebnik, Teddy, 2023. "Financing and managing epidemiological-economic crises: Are we ready for another outbreak?," Journal of Policy Modeling, Elsevier, vol. 45(1), pages 74-89.
    5. Bonfiglio, Andrea & Coderoni, Silvia & Esposti, Roberto, 2022. "Policy responses to COVID-19 pandemic waves: Cross-region and cross-sector economic impact," Journal of Policy Modeling, Elsevier, vol. 44(2), pages 252-279.
    6. Giammetti, Raffaele & Papi, Luca & Teobaldelli, Désirée & Ticchi, Davide, 2022. "The optimality of age-based lockdown policies," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 722-738.

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    More about this item

    Keywords

    Coronavirus; Sovereign bond yields; Sovereign credit default swaps; European Central Bank;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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