This paper discusses several determinants of the differential between yields on Italian government securities and yields on foreign government securities. We concentrate on expectations of (at least partial) insolvency, tax factors and exchange rate expectations. The evidence suggests that most of the differential between the cost of Italian debt and the cost of foreign (for example, German) debt is due to exchange rate expectations.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
720.
Find related papers by JEL classification: E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates F34 - International Economics - - International Finance - - - International Lending and Debt Problems H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
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