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Fiscal policy events and interest rate swap spreads: evidence from the EU

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  • Strauch, Rolf
  • Afonso, António

Abstract

In this paper we assess the importance given in capital markets to the credibility of the European fiscal framework. We evaluate to which extent relevant fiscal policy events taking place in the course of 2002 produced a reaction in the long-term bond segment of the capital markets. Firstly, we identify the fiscal policy events and qualitatively assess the views of capital market participants. Secondly, we estimate the impact of these fiscal events on the interest rate swap spreads, which is our measure for the risk premium. According to our results the reaction of swap spreads, where it turned out to be significant, has been mostly around five basis points or less. JEL Classification: C22, G15, H30

Suggested Citation

  • Strauch, Rolf & Afonso, António, 2004. "Fiscal policy events and interest rate swap spreads: evidence from the EU," Working Paper Series 303, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2004303
    Note: 339130
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    References listed on IDEAS

    as
    1. Jan J.G. Lemmen & Charles A.E. Goodhart, 1999. "Credit Risks and European Government Bond Markets: A Panel Data Econometric Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 25(1), pages 77-107, Winter.
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    More about this item

    Keywords

    fiscal policy events; interest rate swap spreads; Stability and Growth Pact;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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