What Determines Borrowing Costs of EU Countries

Jan Zilinsky ()
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Jan Zilinsky: MIT, Department of Economics

No WP 4/2009, Working and Discussion Papers from Research Department, National Bank of Slovakia

Abstract: This paper finds that public debt and a range of other economic variables are surprisingly weakly correlated with sovereign spreads in EU countries. Democratic capital, on the other hand, was a powerful predictor of spread heights between 2003 and 2007, while its relevance disappeared in late 2008, when only credit ratings were correlated with the investors' estimate of default probabilities. These results suggests that (1) institutional characteristics may sometimes play a central role in determining borrowing costs and (2) investors attach different weights to relevant variables depending on global macroeconomic conditions.

Keywords: Public debt; Democratic capital; Long-term interest rates; Monetary unions; Financial crises (search for similar items in EconPapers)
JEL-codes: F5 H6 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009-12
New Economics Papers: this item is included in nep-cse, nep-eec and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:svk:wpaper:1007

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