This study analyses whether expected budget deficits have an impact on interest rate swap spreads in France, Germany and Italy. We use monthly deficit forecasts from financial market participants to take the forward-looking behaviour of financial markets into account. Results of a SUR estimation...

We investigate the effect of fiscal institutions such as the strength of the finance minister in the budget process and deficits on interest spreads contained in bond yields of the countries now belonging to the Eurozone. Deficits significantly increase risk premia measured by relative swap...

The problem of governments’ over-indebtedness is one of the most important challenges for today’s EMU governance. As numbers suggest, the problem of extensive deficits has appeared in the EMU long before the burst of the global financial crisis. We suspect that the membership in a currency...

We study the determinants of sovereign bond spreads in the euro area since the introduction of the euro. We show that an aggregate risk factor is a main driver of spreads. This factor also plays an important indirect role for risk spreads through its interaction with the size and structure of...

We consider fiscal and monetary policy interactions in a monetary union under monetary leadership, when the common central bank is concerned with the average fiscal stance of the union. We use a static two-country monetary union model to investigate the policy-mix problem under different regimes...