Sovereign Risk, Elections, and Contagion

Li, Chi; Balding, Christopher; Lee, Minsoo

doi:10.2139/ssrn.2282282

Cited by 3 publications

(1 citation statement)

References 45 publications

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“…Electoral uncertainty may be captured by a dummy variable by placing a value of one at the year of national elections and zero otherwise (Elections). Theoretically, an election year may increase yields since investors may expect less fiscal discipline during that year (Vaaler et al 2005;Li et al 2013). A dummy variable with the value of one at 2012-the most turbulent year of the Eurozone debt crisis-and zero otherwise was constructed to capture the effects of international risk aversion (Ecrisis).…”

Section: Variables and Data Setmentioning

confidence: 99%

The Driving Factors of EMU Government Bond Yields: The Role of Debt, Liquidity and Fiscal Councils

Pappas

Kostakis

2020

IJFS

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This study presents empirical evidence about the determinants of long-term government bond yields for 19 economies of the European Monetary Union (EMU) over the period 1995–2018 within a multivariate panel framework. The fixed effects estimators reveal that the relationship between public debt to the GDP ratio and yields is non-linear. We observe a threshold, which is determined to be at the area 90% of the ratio of public debt to GDP. Beyond that, area government borrowing costs increase as the public debt rises. Furthermore, we find evidence that a GDP decline and the downgrades of sovereign ratings increase the costs of government borrowing. In contrast, the operation of independent fiscal institutions helps to reduce government’s debt risk premium. Finally, liquidity in the Euro area plays a significant role on yields determination. The results remain robust when the dynamic instrumental variable fixed effect (FE-2SLS) and dynamic panel least square dummy variable corrected (LSDVC) estimators are employed. Empirical findings suggest important policy implications for the ongoing Covid-19 crisis for the EMU.

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Section: Variables and Data Setmentioning

confidence: 99%