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Government solvency and financial markets: Dynamic panel estimates for the European Monetary Union

  • Theofilakou, Nancy
  • Stournaras, Yannis
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    We assess government solvency in the European Monetary Union (EMU), controlling for the interaction of fiscal policy with financial markets. We find a positive interaction, reflecting market-based pressures for fiscal improvement, and significant debt stabilization efforts, weakened in the post-EMU era.

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    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 115 (2012)
    Issue (Month): 1 ()
    Pages: 130-133

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    Handle: RePEc:eee:ecolet:v:115:y:2012:i:1:p:130-133
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    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    2. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
    3. Peter Claeys, 2005. "Policy mix and debt sustainability: evidence from fiscal policy rules," Economics Working Papers ECO2005/01, European University Institute.
    4. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
    5. Bohn, Henning, 2007. "Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1837-1847, October.
    6. Carlo Favero & Francesco Giavazzi & Jacopo Perego, 2011. "Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy," IMF Economic Review, Palgrave Macmillan, vol. 59(4), pages 652-682, November.
    7. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers 125, Center for Global Development.
    8. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 503-532, October.
    9. James D. Hamilton & Marjorie A. Flavin, 1985. "On the Limitations of Government Borrowing: A Framework for Empirical Testing," NBER Working Papers 1632, National Bureau of Economic Research, Inc.
    10. Roberto Golinelli & Sandro Momigliano, 2009. "The Cyclical Reaction of Fiscal Policies in the Euro Area: The Role of Modelling Choices and Data Vintages," Fiscal Studies, Institute for Fiscal Studies, vol. 30(1), pages 39-72, 03.
    11. Kazuhiko Hayakawa, 2009. "First Difference or Forward Orthogonal Deviation- Which Transformation Should be Used in Dynamic Panel Data Models?: A Simulation Study," Economics Bulletin, AccessEcon, vol. 29(3), pages 2008-2017.
    12. repec:oup:qjecon:v:113:y:1998:i:3:p:949-963 is not listed on IDEAS
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