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What Determines Borrowing Costs of EU Countries

Author

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  • Jan Zilinsky

    () (MIT, Department of Economics)

Abstract

This paper finds that public debt and a range of other economic variables are surprisingly weakly correlated with sovereign spreads in EU countries. Democratic capital, on the other hand, was a powerful predictor of spread heights between 2003 and 2007, while its relevance disappeared in late 2008, when only credit ratings were correlated with the investors' estimate of default probabilities. These results suggests that (1) institutional characteristics may sometimes play a central role in determining borrowing costs and (2) investors attach different weights to relevant variables depending on global macroeconomic conditions.

Suggested Citation

  • Jan Zilinsky, 2009. "What Determines Borrowing Costs of EU Countries," Working and Discussion Papers WP 4/2009, Research Department, National Bank of Slovakia.
  • Handle: RePEc:svk:wpaper:1007
    as

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    File URL: http://www.nbs.sk/_img/Documents/PUBLIK/WP_4-2009.pdf
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    References listed on IDEAS

    as
    1. Vicarelli, Claudio & De Santis, Roberta & De Nardis, Sergio, 2008. "The Single Currency's Effects on Eurozone Sectoral Trade: Winners and Losers?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-34.
    2. Petroulas, Pavlos, 2007. "The effect of the euro on foreign direct investment," European Economic Review, Elsevier, vol. 51(6), pages 1468-1491, August.
    3. Baldwin, Richard E. & Skudelny, Frauke & Taglioni, Daria, 2005. "Trade effects of the euro: evidence from sectoral data," Working Paper Series 446, European Central Bank.
    4. Richard Baldwin & Virginia DiNino & Lionel Fontagné & Roberto A. De Santis & Daria Taglioni, 2008. "Study on the Impact of the Euro on Trade and Foreign Direct Investment," European Economy - Economic Papers 2008 - 2015 321, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Christopher Taylor, 2008. "Foreign direct investment and the euro: the first five years," Cambridge Journal of Economics, Oxford University Press, vol. 32(1), pages 1-28, January.
    6. Martin Suster & Marek Arendas & Michal Bencik & Pavel Gertler & Frantisek Hajnovic & Zora Kominkova & Tibor Lalinsky & Marian Nemec & Dusan Preisinger & Vladimir Solanic & Anna Strachotova & Marcel Ti, 2006. "The Effects of euro Adoption on the Slovak Economy," Working and Discussion Papers 1/2006, Research Department, National Bank of Slovakia.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Public debt; Democratic capital; Long-term interest rates; Monetary unions; Financial crises;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

    NEP fields

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