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What Determines Borrowing Costs of EU Countries

Author

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  • Jan Zilinsky

    (MIT, Department of Economics)

Abstract

This 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.

Suggested Citation

  • Jan Zilinsky, 2009. "What Determines Borrowing Costs of EU Countries," Working and Discussion Papers WP 4/2009, Research Department, National Bank of Slovakia.
    • Handle: RePEc:svk:wpaper:1007
    as

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    File URL: http://www.nbs.sk/_img/Documents/PUBLIK/WP_4-2009.pdf
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    References listed on IDEAS

    as
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    6. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
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    More about this item

    Keywords

    Public debt; Democratic capital; Long-term interest rates; Monetary unions; Financial crises;
    All these keywords.

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

    NEP fields

    This paper has been announced in the following NEP Reports:

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