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Rules and risk in the euro area

  • Anna Iara
  • Guntram B. Wolff

Anna Iara and Guntram Wolff develop a model of sovereign spreads that are determined by the probability of default in interaction with the level of risk aversion. Estimation of the model confirms the central predictions. The legal basis for the rules, and mechanisms for enforcing them, are the most important dimensions of rulesbased fiscal governance.

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Paper provided by Bruegel in its series Working Papers with number 615.

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Date of creation: Oct 2011
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Handle: RePEc:bre:wpaper:615
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