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

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Author Info
David Hauner
Jirí Jonáš
Manmohan S. Kumar

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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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/1.

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Length: 29 pages
Date of creation: 09 Jan 2007
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Handle: RePEc:imf:imfwpa:07/1

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

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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.:
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  3. 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)
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  7. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53. [Downloadable!]
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  8. 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!]
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  13. Paulo Flavio Nacif Drummond & Zuzana Murgasova & Susan Schadler & Rachel van Elkan & Louis Kuijs, 2005. "Adopting the Euro in Central Europe: Challenges of the Next Step in European Integration," IMF Occasional Papers 234, International Monetary Fund.
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  18. M Pesaran & Yongcheol Shin & Ron P Smith, 2004. "Pooled mean group estimation of dynamic heterogeneous panels," ESE Discussion Papers 16, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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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.)

  1. Pipat Luengnaruemitchai & Susan Schadler, 2007. "Do Economists' and Financial Markets' Perspectives on the New Members of the EU Differ?," IMF Working Papers 07/65, International Monetary Fund. [Downloadable!]
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