Fiscal Policy and the Term Premium in Real Interest Rate Differentials
This paper seeks to identify the source of the risk premium in real interest rate differentials across European countries. In particular, we examine the link between real interest rate differentials, existing between various European countries and Germany, and domestic fiscal policy as proxied by the Debt/GDP ratios in these countries. Our results provide strong evidence that this variable exerts a significant influence on the determination of both the level and the volatility of the differential for both long term and short term interest rates. This is a noteworthy result bearing in mind the Maastricht criteria for European Monetary Union and the importance attached to convergence of Debt/GDP ratios.
|Date of creation:||Apr 1998|
|Date of revision:|
|Contact details of provider:|| Postal: Maynooth, Co. Kildare|
Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew Clare & Raymond O'Brien & Stephen Thomas & Michael Wickens, . "Macroeconomic Shocks and the Domestic CAPM: Evidence from the UK Stock Market," Discussion Papers 94/10, Department of Economics, University of York.
- J. Tobin, 1958.
"Liquidity Preference as Behavior Towards Risk,"
Review of Economic Studies,
Oxford University Press, vol. 25(2), pages 65-86.
- Tobin, James, 1981.
"Money and Finance in the Macro-Economic Process,"
Nobel Prize in Economics documents
1981-1, Nobel Prize Committee.
- Charles M. Engel & Anthony P. Rodrigues, 1992.
"Tests of mean-variance efficiency of international equity markets,"
9209, Federal Reserve Bank of New York.
- Engel, Charles M & Rodrigues, Anthony P, 1993. "Tests of Mean-Variance Efficiency of International Equity Markets," Oxford Economic Papers, Oxford University Press, vol. 45(3), pages 403-21, July.
- Charles Engel & Anthony P. Rodrigues, 1990. "Tests of mean-variance efficiency of international equity markets," Research Working Paper 90-05, Federal Reserve Bank of Kansas City.
- Engel, Charles & Rodrigues, Anthony P, 1989.
"Tests of International CAPM with Time-Varying Covariances,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 4(2), pages 119-38, April-Jun.
- Charles Engel & Anthony P. Rodrigues, 1987. "Tests of International CAPM with Time-Varying Covariances," NBER Working Papers 2303, National Bureau of Economic Research, Inc.
- Thoms, S. H., 1993. "An international CAPM for bonds and equities," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 390-412, August.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Jeffrey A. Frankel and Alan T. MacArthur., 1987.
"Political vs. Currency Premia in International Real Interest Differentials: A Study of Forward Rates for 24 Countries,"
Economics Working Papers
8762, University of California at Berkeley.
- Frankel, Jeffrey A. & MacArthur, Alan T., 1988. "Political vs. currency premia in international real interest differentials : A study of forward rates for 24 countries," European Economic Review, Elsevier, vol. 32(5), pages 1083-1114, June.
- Jeffrey A. Frankel & Alan T. MacArthur, 1987. "Political vs. Currency Premia in International Real Interest Differentials: A Study of Forward Rates for 24 Countries," NBER Working Papers 2309, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:may:mayecw:n830498. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.