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Fiscal Spillovers in the Euro Area

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  • Guglielmo Maria Caporale
  • Alessandro Girardi

Abstract

This paper analyses the dynamic effects of fiscal imbalances in a given EMU member state on the borrowing costs of other countries in the euro area. The estimation of a multivariate, multi-country time series model (specifically a Global VAR, or GVAR) using quarterly data for the EMU period suggests that euro-denominated government yields are strongly linked with each other. However, financial markets seem to be able to discriminate among different issuers. Consequently, fiscal imbalances in Italy and in other peripheral countries should be closely monitored by their EMU partners and the European institutions.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.387535.de/dp1164.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1164.

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Length: 32 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1164

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Keywords: Global VAR methodology; fiscal spillovers; euro area; public debt;

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Citations

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Cited by:
  1. Antonakakis, Nikolaos & Vergos, Konstantinos, 2012. "Sovereign Bond Yield Spillovers in the Euro Zone During the Financial and Debt Crisis," MPRA Paper 43284, University Library of Munich, Germany.
  2. Van Hecke, Annelore, 2013. "Vertical debt spillovers in EMU countries," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 468-492.
  3. Florence Bouvet & Ryan Brady & Sharmila King, 2013. "Debt Contagion in Europe: A Panel-Vector Autoregressive (VAR) Analysis," Social Sciences, MDPI, Open Access Journal, vol. 2(4), pages 318-340, December.
  4. De Grauwe, Paul & Ji, Yuemei, 2012. "Self-Fulfilling Crises in the Eurozone: An Empirical Test," CEPS Papers 7085, Centre for European Policy Studies.
  5. Javier J. Pérez & Rocío Prieto, 2014. "The structure of sub-natural public debt: Liquidity vs credit risk," Banco de Espa�a Working Papers 1403, Banco de Espa�a.

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