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The price relevance of fiscal developments

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Resumo:We use SURE estimation methods to assess the link between prices, bond yields and the fiscal behavior. A first equation determines the country-specific cost of government financing via the long-term government bond yield, as a function of budget balance positions. A second equation links the price level to the cost of government financing. Our results for 15 EU countries in the period 1980Q1-2013Q4, show that: improvements in the fiscal stance lead to persistent falls in sovereign yields; higher sovereign yields are reflected in upward price movements; improvements in the fiscal stance in recession times lead to short-term decreases in yields; better fiscal stance in expansions induce downward movement in bond yields only after 8 quarters.
Autores principais:Afonso, António
Outros Autores:Jalles, João Tovar
Assunto:Price Level Yields Ricardian Regimes SURE Local Projection Impulse Response Function
Ano:2015
País:Portugal
Tipo de documento:working paper
Tipo de acesso:acesso aberto
Instituição associada:Universidade de Lisboa
Idioma:inglês
Origem:Repositório da Universidade de Lisboa

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