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Euro bonds: in search of financial spillovers

Author

Listed:
  • Stefano Schiavo

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

The paper investigates the empirical relevance of the negative financial spillovers hypothesis according to which fiscal imbalances in one EMU member country bid up the interest rate faced by all other participants in the currency union. This idea questions the ability of financial markets to correctly price various types of risk now that the elimination of exchange rate fluctuations and the rapid integration of national government bond markets have made securities issued by different European governments closer substitutes. The paper takes an eclectic approach and tackles the issue from different angles, reviewing historical episodes, testing the Ricardian equivalence hypothesis in Europe as a whole and finally analyzing the impact of domestic and foreign fiscal variables on European bond yields. Despite the strong comovements displayed by European interest rates, empirical evidence does not support the idea that fiscal variables are a key determinant of these interrelations.

Suggested Citation

  • Stefano Schiavo, 2008. "Euro bonds: in search of financial spillovers," Sciences Po Economics Publications (main) hal-03397592, HAL.
    • Handle: RePEc:hal:spmain:hal-03397592
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    Cited by:

    1. is not listed on IDEAS
    2. Roberto Tamborini, 2014. "Interest-Rate Spread and Public-Debt Dynamics in a Two-Country Monetary-Union Portfolio Model," Open Economies Review, Springer, vol. 25(2), pages 243-261, April.
    3. Van Hecke, Annelore, 2013. "Vertical debt spillovers in EMU countries," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 468-492.

    More about this item

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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