OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN : 18151973 (en ligne)
- https://doi.org/10.1787/18151973
What Drives Sovereign Risk Premiums?
An Analysis of Recent Evidence from the Euro Area
This paper analyses recent large movements in the yield spread for sovereign bonds as between
Germany and other euro area countries. While the general increase in risk aversion that has characterised
the financial crisis is an important factor on its own, it is found that this has also magnified the importance
of fiscal performance, in particular as measured by the ratio of debt service to tax receipts and expected
fiscal deficits. Moreover, there is evidence to suggest that such effects are non-linear, so that incremental
deteriorations in fiscal performance lead to ever larger increases in the spread. These findings imply that
financial market reaction could become an increasingly important constraint on fiscal policy for some
countries, a feature which was much less apparent in the years prior to the financial crisis when general
risk aversion was abnormally low.
Mots-clés: debt, interest rate, fiscal policy, government bonds, deficit, bond market
JEL:
G12: Financial Economics / General Financial Markets / Asset Pricing; Trading volume; Bond Interest Rates;
E43: Macroeconomics and Monetary Economics / Money and Interest Rates / Interest Rates: Determination, Term Structure, and Effects;
E63: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
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