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Expected budget deficits and interest rate swap spreads - Evidence for France, Germany and Italy

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  • Heppke-Falk, Kirsten H.
  • Hüfner, Felix P.

Abstract

This study analyses whether expected budget deficits have an impact on interest rate swap spreads in France, Germany and Italy. We use monthly deficit forecasts from financial market participants to take the forward-looking behaviour of financial markets into account. Results of a SUR estimation show no significant impact of expected deficits on swap spreads over the whole sample period (1994-2004). However, we find an increase in market discipline for Germany and France since the signing of the Stability and Growth Pact, and for Germany also since the start of European monetary union. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2004,40.

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Date of creation: 2004
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Handle: RePEc:zbw:bubdp1:2918

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Related research

Keywords: Budget deficits; interest rate swap spreads; EMU; Stability and Growth Pact;

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  1. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
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Cited by:
  1. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2009. "Government risk premiums in the bond market: EMU and Canada," European Journal of Political Economy, Elsevier, vol. 25(3), pages 371-384, September.
  2. Maria-Grazia Attinasi & Cristina Checherita & Christiane Nickel, 2009. "What explains the surge in euro area sovereign spreads during the financial crisis of 2007-09?," Working Paper Series 1131, European Central Bank.
  3. Heppke-Falk, Kirsten H. & Wolff, Guntram B., 2007. "Moral hazard and bail-out in fiscal federations: evidence for the German Länder," Discussion Paper Series 1: Economic Studies 2007,07, Deutsche Bundesbank, Research Centre.
  4. Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2012. "Sovereign risk premiums in the European government bond market," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 975-995.
  5. Andrea Terzi, 2007. "WP 2007-4 Fiscal deficits in the U.S. and Europe: Revisiting the link with interest rates," SCEPA Working Papers 2007-4, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  6. 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).
  7. Fendel, Ralf & Frenkel, Michael & Rülke, Jan-Christoph, 2011. ""Ex-ante" Taylor rules and expectation forming in emerging markets," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 230-244, June.
  8. Matthias Bauer & Martin Zenker, 2012. "Minor Nuisance Around Foreign Exchange Markets - Lessons from the Stability and Growth Pact Debate," Global Financial Markets Working Paper Series 2012-32, Friedrich-Schiller-University Jena.
  9. Jonas Dovern & Ulrich Fritsche, 2008. "Estimating Fundamental Cross-Section Dispersion from Fixed Event Forecasts," Discussion Papers of DIW Berlin 787, DIW Berlin, German Institute for Economic Research.
  10. Matthias Bauer & Martin Zenker, 2012. "Market Discipline Under A Politicised Multilateral Fiscal Rule - Lessons from the Stability and Growth Pact Debate," Global Financial Markets Working Paper Series 2012-35, Friedrich-Schiller-University Jena.

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