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Sovereign Debt Maturity and Debt-to GDP Dynamics in Six Euro Area Countries

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  • Juan Equiza Goni

Abstract

At a time when debt-to-GDP ratios are closely monitored in the Euro area, thispaper generates a set of stylized facts about sovereign debt and yields. First, Ipresent a new dataset on outstanding debt securities and yields for six EA countries(Belgium, Finland, France, Germany, Italy and Spain) from 1991 to 2013 that Ibuilt combining different sources. Thus, I can document, for example, that EAdebt duration increased by 2 years, mainly driven by demand. Second, based onthe government budget constraint, I calculate past contributions of returns on debtwith different maturities, inflation and other factors to EA debt-to-GDP changes andcompare them with the US experience. While primary deficits played an importantrole in the latter, returns on debt is the key factor in EA countries, especially whenlarge capital gains were paid to long-term bondholders before the introduction of theEuro. Also, although GDP growth contributions were similar, the EA relied moreon inflation and the US on real output growth. Finally, I estimate that 1% futurepermanently higher inflation would reduce EA debt ratios by 4%, an effect 2.4 timeshigher than the expected change in the US.

Suggested Citation

  • Juan Equiza Goni, 2014. "Sovereign Debt Maturity and Debt-to GDP Dynamics in Six Euro Area Countries," Working Papers ECARES ECARES 2014-44, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/176559
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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