Fiscal policy events and interest rate swap spreads - evidence from the EU

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Fiscal policy events and interest rate swap spreads - evidence from the EU

Author Info

António Afonso () (European Central Bank, Directorate General Economics)
Rolf Strauch () (European Central Bank, Directorate General Economics)

Additional information is available for the following registered author(s):

Antonio Afonso

Abstract

In this paper we assess 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 the course of 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 the risk premium. According to our results the reaction of swap spreads, where it turned out to be significant, has been mostly around five basis points or less.

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Paper provided by European Central Bank in its series Working Paper Series with number 303.

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Length: 51 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:ecb:ecbwps:20040303

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Article
- Afonso, Antonio & Strauch, Rolf, 2007. "Fiscal policy events and interest rate swap spreads: Evidence from the EU," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(3), pages 261-276, July. [Downloadable!] (restricted)

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-04 (All new papers)
NEP-EEC-2005-10-04 (European Economics)
NEP-FIN-2005-10-04 (Finance)
NEP-FMK-2005-10-04 (Financial Markets)
NEP-PBE-2005-10-04 (Public Economics)

References listed on IDEAS
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Favero, Carlo A & Giavazzi, Francesco & Spaventa, Luigi, 1997. "High Yields: The Spread on German Interest Rates," Economic Journal, Royal Economic Society, vol. 107(443), pages 956-85, July. [Downloadable!] (restricted)
Other versions:
- Carlo Favero & Francesco Giavazzi & Luigi Spaventa, 1998. "High Yields: The Spread on German Interest Rates," NBER Working Papers 5408, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Carlo Ambrogio Favero & Francesco Giavazzi & Luigi Spaventa, . "High Yielders: the Spread on German Interest Rates," Working Papers 102, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Favero, Carlo A & Giavazzi, Francesco & Spaventa, Luigi, 1996. "High Yields: The Spread on German Interest Rates," CEPR Discussion Papers 1330, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
António Afonso, 2002. "Understanding the Determinants of Government Debt Ratings: Evidence for the Two Leading Agencies," Working Papers 2002/02, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
Michael J. Fleming & Eli M. Remolona, 1999. "The term structure of announcement effects," Staff Reports 76, Federal Reserve Bank of New York. [Downloadable!]
Other versions:
- Michael J. Fleming & Eli M Remolona, 1999. "The term structure of announcement effects," BIS Working Papers 71, Bank for International Settlements. [Downloadable!]
Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR, CES, MSH, vol. 18(37), pages 503-532, October. [Downloadable!] (restricted)
Michael Ehrmann & Marcel Fratzscher, 2002. "Interdependence between the euro area and the US: what role for EMU?," Working Paper Series 200, European Central Bank. [Downloadable!]
Other versions:
- M. Ehrmann & M. Fratzscher, 2003. "Interdependence between the Euro area and the U.S.: what role for EMU?," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Hallerberg, Mark & Wolff, Guntram B., 2006. "Fiscal institutions, fiscal policy and sovereign risk premia," Discussion Paper Series 1: Economic Studies 2006,35, Deutsche Bundesbank, Research Centre. [Downloadable!]
Silvia Ardagna, 2004. "Financial markets’ behavior around episodes of large changes in the fiscal stance," Working Paper Series 390, European Central Bank. [Downloadable!]
Silvia Ardagna & Francesco Caselli & Timothy Lane, 2004. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," NBER Working Papers 10788, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Ardagna, Silvia & Caselli, Francesco & Lane, Timothy, 2004. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," CEPR Discussion Papers 4661, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Silvia Ardagna & Francesco Caselli & Timothy Lane, 2004. "Fiscal discipline and the cost of public debt service: some estimates for OECD countries," Working Paper Series 411, European Central Bank. [Downloadable!]
- Francesco Caselli, 1998. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," IMF Working Papers 98/55, International Monetary Fund.
- Silvia Ardagna & Francesco Caselli & Timothy Lane, 2005. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," CEP Discussion Papers dp0670, Centre for Economic Performance, LSE. [Downloadable!]
- Silvia Ardagna & Francesco Caselli & Timothy Lane, 2007. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," The B.E. Journal of Macroeconomics, Berkeley Electronic Press, vol. 7(1). [Downloadable!]
Mark Hallerberg & Guntram Wolff, 2008. "Fiscal institutions, fiscal policy and sovereign risk premia in EMU," Public Choice, Springer, vol. 136(3), pages 379-396, September. [Downloadable!] (restricted)
Katia Rocha & Ajax Moreira, 2009. "O Impacto da Política Fiscal nos Spreads Soberanos: A Austeridade Fiscal e a Qualidade do Ajuste," Discussion Papers 1422, Instituto de Pesquisa Econômica Aplicada - IPEA. [Downloadable!]
Ricardo M. Sousa & António Afonso, 2008. "The Macroeconomic Effects of Fiscal Policy," NIPE Working Papers 22/2008, NIPE - Universidade do Minho. [Downloadable!]
Other versions:
- António Afonso & Ricardo M. Sousa, 2008. "The Macroeconomic Effects of Fiscal Policy," Working Papers 2008/56, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
- António Afonso & Ricardo M. Sousa, 2009. "The macroeconomic effects of fiscal policy," Working Paper Series 991, European Central Bank. [Downloadable!]
Thomas Stratmann & Bernardin Akitoby, 2006. "Fiscal Policy and Financial Markets," IMF Working Papers 06/16, International Monetary Fund. [Downloadable!]
Other versions:
- Bernardin Akitoby & Thomas Stratmann, 2008. "Fiscal Policy and Financial Markets," Economic Journal, Royal Economic Society, vol. 118(533), pages 1971-1985, November. [Downloadable!] (restricted)
Stefano Schiavo, 2005. "Euro bonds: in search of financial spillovers," Department of Economics Working Papers 0502, Department of Economics, University of Trento, Italia. [Downloadable!]
Carlos Mulas-Granados & Emanuele Baldacci & Sanjeev Gupta, 2009. "How Effective is Fiscal Policy Response in Systemic Banking Crises?," IMF Working Papers 09/160, International Monetary Fund. [Downloadable!]
Csaba Csávás & Lóránt Varga & Csaba Balogh, 2008. "The forint interest rate swap market and the main drivers of swap spreads," MNB Occasional Papers 2008/64, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]

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