Effects of Eurobonds: A stochastic sovereign debt sustainability analysis for Portugal, Ireland and Greece

Tielens, Joris; Aarle, Bas van; Hove, Jan Van

doi:10.1016/j.jmacro.2014.06.004

Cited by 8 publications

(4 citation statements)

References 36 publications

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“…Tielens et al, 2014). The smoothing parameter λ of the HP-filter is then set at its standard value of 100 for data at the yearly frequency.…”

Section: Estimation Resultsmentioning

confidence: 99%

“…Garcia and Rigobon, 2004;Celasun et al, 2007;Budina and van Wijnbergen, 2008;Tanner and Samake, 2008;Cherif and Hasanov, 2012;Tielens et al, 2014), the baseline projections of the macroeconomic determinants, {g t , π t , r t } T t=0 , are constructed using a reduced form vector auto-regression model. 6 The VAR model also gives the estimated variancecovariance matrix of the shocks in the debt dynamics' non-fiscal determinants, Ω.…”

Section: Non-fiscal Determinantsmentioning

confidence: 99%

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Fiscal Rule Infringement Risks: A Stochastic Characterization of EMU Budgets and Their Discipline

Wielen

2015

SSRN Journal

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With the recent debt crisis, the necessity of effective measures for safeguarding fiscal sustainability has become patent, leading to an intense debate. Most of the debate focuses on strengthening fiscal rules and restoring fiscal imbalances through austerity measures. In this paper, I address two issues impeding the success of these measures: macroeconomic uncertainty and fiscal policy reaction. Specifically, I apply a structural VAR model to characterize the shocks to growth, inflation and interest rates. In combination with the estimation of fiscal reaction functions, this allows for the application of a Monte Carlo-based approach for deriving the distribution of uncertainty of fiscal realizations. Furthermore, the model quantifies fiscal rule infringement risks and the distribution of the adjustment necessary to restore sustainability. The model thus lends empirical support to recent literature emphasizing uncertainty as essential to the appraisal of a country's fiscal position. Results suggest that the Italian debt path is typified by higher intrinsic uncertainty than its European counterparts. Yet, taking into account the behavioral uncertainty of fiscal policy makers, Spain is the most likely country not to live up to the debt brake in the medium-run. This may impel the enforcement of stricter surveillance to hedge against disadvantageous outcomes.

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“…Tielens et al, 2014). The smoothing parameter λ of the HP-filter is then set at its standard value of 100 for data at the yearly frequency.…”

Section: Estimation Resultsmentioning

confidence: 99%

Section: Non-fiscal Determinantsmentioning

confidence: 99%

Fiscal Rule Infringement Risks: A Stochastic Characterization of EMU Budgets and Their Discipline

Wielen

2015

SSRN Journal

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“…However, "in Boonstra's proposal, it is highly questionable if a penalty interest rate alone is enough to prevent moral hazard -especially if at the same time access to Eurobond funding is guaranteed and unlimited." 15 In November 2011, the European Commission issued a Green paper in which it proposed the issuance of Stability Bonds. In this proposal, three options 13 Delpla, J.; Von Weizsäcker, J. were offered for Stability Bonds.…”

Section: The Proposals For Implementing the Idea Of The Common Eurobomentioning

confidence: 99%

Is the Idea of the Common Eurobonds Issuance in the Eurozone Sustainable?

Pobrić

2019

iele

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Although the concept of common Eurobonds issuance in the Eurozone was intensively considered during and after the euro area debt crisis, the proposals for implementing this idea appeared earlier, i.e. they have been presented since 1993 to the present day. By considering about fifteen proposals, as well as the expected economic effects of the implementing idea and the fulfillment of legal and political conditions for implementing the idea of the common Eurobonds issuance in the Eurozone, the author tends to answer the question: Is the concept about the common Eurobonds issuance in the Eurozone sustainable? The author concludes that the idea of the common Eurobonds issuance in the Eurozone is not possible in existing conditions, given that numerous proposals presented so far make the idea highly controversial and the possible bi-directionality in manifesting the economic effects and the political opposition additionally make the controversy stronger. However, the idea could be sustainable in the future if fiscal integration and political union in the euro area became strong.

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“…In other words, they find evidence on the "spend and tax" hypothesis rather than on the "tax and spend" one. In an interesting contribution, Tielens et al (2014) use a vector autoregressive model to assess the impact that Eurobonds could have on debt dynamics in Portugal, Ireland, and Greece. They argue that Eurobonds can improve budgetary sustainability by absorbing macroeconomic shocks and by decreasing uncertainty over debt forecasts.…”

Section: Literature Reviewmentioning

confidence: 99%

On the role of financial aid in a default episode

2018

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In the academic literature, there is some consensus on the negative effects of sovereign default episodes. For instance, De Paoli et al. (2011), and Yeyati and Panizza (2011) find that sovereign defaults have an adverse impact on economic growth. The literature has underscored several transmission channels as sovereign defaults affect economic activity. For example, Fuentes and Saravia (2010) find that foreign direct investment tends to fall after a default event. Moreover, other papers have documented that default episodes commonly lead to higher borrowing costs, and at times, to lose access to international financial markets. Borensztein et al. (2009) find that the cost of borrowing is significantly higher immediately after a default episode (relative to the cost prior to the default). Arteta et al. (2008) document that foreign credit to the private sector declines after a sovereign default episode. Cruces and Trebesch (2013), and Richmond et al. (2009) find that debt restructuring can have a significant and lasting impact on access to foreign financing. In short, sovereign defaults are costly. However, for a government, there are benefits related to defaulting on its outstanding debt obligations. The economic literature has highlighted such benefits, particularly so, in papers that model sovereign default events based on a willingness to pay approach (Eaton and Gersovitz (1981)). In this context, an important issue for the international financial community, particularly so for multilateral institutions, has been the

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Effects of Eurobonds: A stochastic sovereign debt sustainability analysis for Portugal, Ireland and Greece

Cited by 8 publications

References 36 publications

Fiscal Rule Infringement Risks: A Stochastic Characterization of EMU Budgets and Their Discipline

Fiscal Rule Infringement Risks: A Stochastic Characterization of EMU Budgets and Their Discipline

Is the Idea of the Common Eurobonds Issuance in the Eurozone Sustainable?

On the role of financial aid in a default episode

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