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Policy Credibility and Sovereign Credit

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Author Info

  • Manmohan S. Kumar
  • Jirí Jonáš
  • David Hauner

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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Bibliographic Info

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

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Length: 29
Date of creation: 01 Jan 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/1

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Keywords: European Union; Economic models; foreign currency; inflation; bond; bonds; real interest rate; bond spreads; government bond; denominated bonds; individual bonds; financial markets; sovereign bond; financial institutions; financial market; international financial statistics; effective interest rate; financial globalization; benchmark bonds; price inflation; monetary policy; domestic-currency; government bond yield; inflation rates; bond prices; financial systems; debt stock; foreign exchange; international finance; stock market volatility; bond yield; individual bond; discount rate; inflation rate; corporate bonds; government bond yields; international reserves; bond yields; bond market; corporate bond; real interest rates; monetary financing; stock market;

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References

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Citations

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Cited by:
  1. Ante Žigman & Boris Cota, 2011. "The impact of fiscal policy on government bond spreads in emerging markets," Financial Theory and Practice, Institute of Public Finance, vol. 35(4), pages 385-412.
  2. Christiane Nickel & Philipp Rother & Jan-Christoph Ruelke, 2011. "Fiscal variables and bond spreads - evidence from Eastern European countries and Turkey," Applied Financial Economics, Taylor & Francis Journals, vol. 21(17), pages 1291-1307.
  3. Martin Èihák & Srobona Mitra, 2009. "The Financial Crisis and European Emerging Economies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 541-553, December.
  4. Martin Cihák & Wim Fonteyne, 2009. "Five Years After," IMF Working Papers 09/68, International Monetary Fund.
  5. Susan Schadler & Pipat Luengnaruemitchai, 2007. "Do Economists' and Financial Markets' Perspectiveson the New Members of the Eu Differ?," IMF Working Papers 07/65, International Monetary Fund.

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