Market discipline and the use of government bonds as collateral in the EMU
AbstractThe confidence that financial markets are able to discipline the debt behaviour of governments is not very high. Therefore, the Stability and Growth Pact has been implemented as an institutional constraint to substitute for the market mechanism. With the weakening of the Pact, market discipline could gain importance again. To strengthen market discipline, reasons for its failure in the euro area have to be analysed. One possible reason could be that the European Central Bank accepts all European government bonds without distinction in its monetary policy auctions as collateral. This could provide the financial market with a signal that these government securities are equally (non-)risky and that a differentiation with respect to risk premia is not needed. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-46.
Date of creation: 2006
Date of revision:
Stability and Growth Pact; Market Discipline; Collateral; Repo;
Find related papers by JEL classification:
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-CFN-2007-03-10 (Corporate Finance)
- NEP-EEC-2007-03-10 (European Economics)
- NEP-MAC-2007-03-10 (Macroeconomics)
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