What Determines Borrowing Costs of EU Countries
AbstractThis paper finds that public debt and a range of other economic variables are surprisingly weakly correlated with sovereign spreads in EU countries. Democratic capital, on the other hand, was a powerful predictor of spread heights between 2003 and 2007, while its relevance disappeared in late 2008, when only credit ratings were correlated with the investors' estimate of default probabilities. These results suggests that (1) institutional characteristics may sometimes play a central role in determining borrowing costs and (2) investors attach different weights to relevant variables depending on global macroeconomic conditions.
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Bibliographic InfoPaper provided by Research Department, National Bank of Slovakia in its series Working and Discussion Papers with number WP 4/2009.
Length: 39 pages
Date of creation: Dec 2009
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More information through EDIRC
Public debt; Democratic capital; Long-term interest rates; Monetary unions; Financial crises;
Find related papers by JEL classification:
- H6 - Public Economics - - National Budget, Deficit, and Debt
- F5 - International Economics - - International Relations, National Security, and International Political Economy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-28 (All new papers)
- NEP-CSE-2010-08-28 (Economics of Strategic Management)
- NEP-EEC-2010-08-28 (European Economics)
- NEP-TRA-2010-08-28 (Transition Economics)
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