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Economic forecasts and sovereign yields

  • António Afonso
  • Ana Sofia Nunes

The European Commission releases twice a year economic forecasts for some macro and fiscal variables (GDP growth rate, inflation, budget balance, among others). In our research we will try to understand if the corrections made to these forecasts have an impact in sovereign yields. We will perform an econometric analysis in a panel of 15 EU countries (Austria, Belgium, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Sweden), covering the period from 1999:1 until 2012:1, and after we analyse each country individually, on the basis of a SUR analysis. We find that corrections in the EC’s forecasts do impinge on the 10-year sovereign bond yields, particularly corrections in fiscal variables, but this impact is different across countries, being more pronounced in countries with less favourable economic conditions.

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Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2013/02.

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Date of creation: Jan 2013
Date of revision:
Handle: RePEc:ise:isegwp:wp022013
Contact details of provider: Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
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  1. Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2004. "Sovereign risk premia in the European government bond market," Working Paper Series 0369, European Central Bank.
  2. Jeffrey Frankel, 2011. "Over-optimism in forecasts by official budget agencies and its implications," Oxford Review of Economic Policy, Oxford University Press, vol. 27(4), pages 536-562.
  3. Bernardin Akitoby & Thomas Stratmann, 2008. "Fiscal Policy and Financial Markets," Economic Journal, Royal Economic Society, vol. 118(533), pages 1971-1985, November.
  4. Javier J. Perez & Rossana Merola, 2012. "Fiscal forecast errors: governments vs independent agencies?," EcoMod2012 4694, EcoMod.
  5. António Afonso, 2009. "Long-term Government Bond Yields and Economic Forecasts: Evidence for the EU," Working Papers Department of Economics 2009/38, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. Afonso, António & Arghyrou, Michael G. & Kontonikas, Alexandros, 2015. "The determinants of sovereign bond yield spreads in the EMU," Working Paper Series 1781, European Central Bank.
  7. Merola, Rossana & Pérez, Javier J., 2014. "Fiscal Forecast Errors: Governments Versus Independent Agencies?," Papers RB2014/1/1, Economic and Social Research Institute (ESRI).
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  9. Ioana Alexopoulou & Irina Bunda & Annalisa Ferrando, 2010. "Determinants of Government Bond Spreads in New EU Countries," Eastern European Economics, M.E. Sharpe, Inc., vol. 48(5), pages 5-37, September.
  10. António Afonso & Pedro Gomes, 2011. "Do Fiscal Imbalances Deteriorate Sovereign Debt Ratings ?," Revue économique, Presses de Sciences-Po, vol. 62(6), pages 1123-1134.
  11. Bernoth, Kerstin & Wolff, Guntram B., 2006. "Fool the markets? Creative accounting, fiscal transparency and sovereign risk premia," Discussion Paper Series 1: Economic Studies 2006,19, Deutsche Bundesbank, Research Centre.
  12. Christophe Rault & António Afonso, 2011. "Long-run Determinants of Sovereign Yields," Economics Bulletin, AccessEcon, vol. 31(1), pages 367-374.
  13. Hagen, Jürgen von & Wolff, Guntram B., 2006. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 148, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  14. Lars Jonung & Martin Larch, 2004. "Improving fiscal policy in the EU: the case for independent forecasts," European Economy - Economic Papers 210, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  15. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, vol. 14(2), pages 235-262.
  16. Khaled Amira, 2004. "Determinants of Sovereign Eurobonds Yield Spread," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5-6), pages 795-821.
  17. Riccardo Faini, 2006. "Fiscal policy and interest rates in Europe," Economic Policy, CEPR;CES;MSH, vol. 21(47), pages 443-489, 07.
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