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Understanding the High Interest Rates on Italian Government Securities


  • Giovannini, Alberto
  • Piga, Gustavo


This paper discusses several determinants of the differential between yields on Italian government securities and yields on foreign government securities. We concentrate on expectations of (at least partial) insolvency, tax factors and exchange rate expectations. The evidence suggests that most of the differential between the cost of Italian debt and the cost of foreign (for example, German) debt is due to exchange rate expectations.

Suggested Citation

  • Giovannini, Alberto & Piga, Gustavo, 1992. "Understanding the High Interest Rates on Italian Government Securities," CEPR Discussion Papers 720, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:720

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    References listed on IDEAS

    1. David Begg & Richard Portes, 1993. "Enterprise debt and economic transformation (Financial restructuring of the state sector in Central and Eastern Europe)," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(1), pages 116-117, January.
    2. Michael Burda & Michael Funke, 1992. "Trade Unions, Wages and Structural Adjustment in the New German States," CESifo Working Paper Series 15, CESifo Group Munich.
    3. Burda, Michael C & Wyplosz, Charles, 1991. "Labour Mobility and German Integration: Some Vignettes," CEPR Discussion Papers 615, C.E.P.R. Discussion Papers.
    4. Siebert, Horst, 1991. "German unification: the economics of transition," Kiel Working Papers 468, Kiel Institute for the World Economy (IfW).
    5. Franz, Wolfgang, 1991. "German labour markets after unification," Discussion Papers, Series II 162, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    6. Dani Rodrik, 1994. "Foreign Trade in Eastern Europe's Transition: Early Results," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 319-356 National Bureau of Economic Research, Inc.
    7. Hans-Werner Sinn, 1991. "Macroeconomic Aspects of German Unification," NBER Working Papers 3596, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Gómez-Puig, Marta, 2008. "Monetary integration and the cost of borrowing," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 455-479, April.
    2. Fazlioglu S., 2013. "Determinants of sovereign debt yield spreads under EMU: Pairwise approach," Research Memorandum 007, Maastricht University, Graduate School of Business and Economics (GSBE).
    3. Saukkonen, Erja, 1995. "Default risk on Finnish government foreign currency debt," Research Discussion Papers 30/1995, Bank of Finland.
    4. Heinemann, Friedrich & Winschel, Viktor, 2001. "Public deficits and borrowing costs: the missing half of market discipline," ZEW Discussion Papers 01-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Claudio E. V. Borio & Robert N. McCauley, 1995. "The anatomy of the bond market turbulence of 1994," BIS Working Papers 32, Bank for International Settlements.
    6. Landon, Stuart & Smith, Constance E., 2007. "Government debt spillovers in a monetary union," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 135-154, August.
    7. Arnold, Ivo & Lemmen, Jan, 2001. "The Vulnerability of Banks to Government Default Risk in the EMU," International Finance, Wiley Blackwell, vol. 4(1), pages 101-125, Spring.
    8. Caporale, Guglielmo Maria & Williams, Geoffrey, 2002. "Long-term nominal interest rates and domestic fundamentals," Review of Financial Economics, Elsevier, vol. 11(2), pages 119-130.

    More about this item


    Exchange-rate Expectations; Italian Debt; Public Debt; Risk-Premium; Witholding Tax;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt


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