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Fiscal Consolidation under Market´s Scrutiny: How Do Fiscal Announcements Affect Bond Yields

Author

Listed:
  • Josef Sveda

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University & The Czech National Bank, Prague, Czech Republic)

  • Jaromir Baxa

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic)

  • Adam Gersl

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

Abstract

We estimate the short-run reactions of bond spreads of selected EU member states vis-a-vis the German bund on fiscal announcements from January 2000 till December 2019. To avoid selection bias, the announcements are scrapped from the Factiva database, and then, depending on their tone, they are classified as hawkish or dovish. We show that announcements of fiscal consolidation decrease the spreads - however, the full-sample result masks substantial time and country variation. The impact of fiscal consolidation is statistically significant, namely in the post-crisis period since the Draghi´s "whatever it takes" speech, but not before the Great Recession or during the European Debt Crisis.

Suggested Citation

  • Josef Sveda & Jaromir Baxa & Adam Gersl, 2022. "Fiscal Consolidation under Market´s Scrutiny: How Do Fiscal Announcements Affect Bond Yields," Working Papers IES 2022/11, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2022.
    • Handle: RePEc:fau:wpaper:wp2022_11
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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6626
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    More about this item

    Keywords

    fiscal announcements; bond spreads; EU debt crisis; fiscal consolidation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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