Government risk premiums in the bond market: EMU and Canada

Ludger Schuknecht, Juergen von Hagen and Guido Wolswijk

European Journal of Political Economy, 2009, vol. 25, issue 3, 371-384

Abstract: This paper focuses on risk premiums paid by central governments in Europe and sub-national governments in Germany, Spain, and Canada, using data for bond yield spreads for the period 1991-2005. We find that risk premiums by central governments respond positively to debt and deficits; German states enjoyed a favourable position in financial markets before EMU but not thereafter; Spanish and Canadian provinces risk premiums over the whole period; German and Spanish sub-central governments pay liquidity-related interest rate premiums; Canadian and German provinces/states that benefit from fiscal equalization lower spreads. This is evidence of market discipline at work and of credibility of the EU no-bailout clause.

Keywords: Interest; rates; Fiscal; policy; Government; debt; Bail; out; Regional; public; finances (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (139)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0176-2680(09)00011-1
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Government risk premiums in the bond market: EMU and Canada (2008)
Working Paper: Government Risk Premiums in the Bond Market: EMU and Canada (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:25:y:2009:i:3:p:371-384

Access Statistics for this article

European Journal of Political Economy is currently edited by J. De Haan, A. L. Hillman and H. W. Ursprung

More articles in European Journal of Political Economy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().