The effects of macroeconomic, fiscal and monetary policy announcements on sovereign bond spreads

Afonso, António; Jalles, João Tovar; Kazemi, Mina

doi:10.1016/j.irle.2020.105924

Cited by 37 publications

(11 citation statements)

References 50 publications

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“…The literature that looks at fiscal policy announcements on euro sovereign spreads is very limited. Afonso et al (2020) study the effect of macroeconomic, monetary and fiscal policy announcements on government bond spreads of ten euro area countries. They analyze the announcements of the excessive deficit procedure (EDP) and find that spreads increase if a country is put under the EDP.…”

Section: Literature Reviewmentioning

confidence: 99%

Dispelling the Shadow of Fiscal Dominance? Fiscal and Monetary Announcement Effects for Euro Area Sovereign Spreads in the Corona Pandemic

et al. 2021

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Section: Literature Reviewmentioning

confidence: 99%

Dispelling the Shadow of Fiscal Dominance? Fiscal and Monetary Announcement Effects for Euro Area Sovereign Spreads in the Corona Pandemic

et al. 2021

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“…Notice that b w is an expected value of final wealth when there is no risk-free asset in the portfolio, w, but where the calculation of the expectation is carried out using a transformed probability density. If we assume that the true density is f(w), then the transformed density is g(w)f(w), where [6] gðwÞ ¼ u 0 ðwÞ Eu 0 w…”

Section: The Basic Modelmentioning

confidence: 99%

“…The issue of credit spreads can also be addressed using the past financial crises in the Euro area. Both Afonso et al (2020) and Gonzalez et al (2019) show that the actions of the European Central Bank have potentially large implications for credit spreads of sovereign debt. More generally, Chen (2018) models a decomposition of risk aversion to extract the "fear component" present in rare events such as the subprime crisis and the debt crisis.…”

Section: Introductionmentioning

confidence: 99%

A new approximation for the risk premium with large risks

Watt

Gunby

2021

JRF

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PurposeThe Arrow–Pratt approximation to the risk premium is only valid for small risks. In this paper we consider a second approximation, based on risk-neutral probabilities and which requires no greater information than the Arrow–Pratt approximation, that works well for both small and large risks.Design/methodology/approachThe paper is theoretical in nature, although it also provides illustrative numerical simulations.FindingsThe new approximation proposed here appears to be significantly superior to Arrow–Pratt for approximating the true value of the risk premium when the risk is large. It may also approximate better even for relatively small risks.Originality/valueAs far as we are aware, there are no other known approximations for the risk premium when the risk involved is large.

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“…Their empirical evidence supports the argument that ECB's expansionary monetary intervention did contribute to containing sovereign yield spreads. Very recently the research of Afonso et al (2020) confirmed that the announcements of the ECB's key interest rates together with the longer-term refinancing operations (LTROs) and liquidity injections contribute significantly to reduction of sovereign yield spreads of EMU countries.…”

Section: Literature Reviewmentioning

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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The effects of macroeconomic, fiscal and monetary policy announcements on sovereign bond spreads

Cited by 37 publications

References 50 publications

Dispelling the Shadow of Fiscal Dominance? Fiscal and Monetary Announcement Effects for Euro Area Sovereign Spreads in the Corona Pandemic

Dispelling the Shadow of Fiscal Dominance? Fiscal and Monetary Announcement Effects for Euro Area Sovereign Spreads in the Corona Pandemic

A new approximation for the risk premium with large risks

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

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