Short and long-term interest rate risk: The sovereign balance-sheet nexus

Antonio Afonso and José Alves

Finance Research Letters, 2019, vol. 31, issue C

Abstract: We compute stock-flow adjustments (SFA) using sovereign balance sheet developments, and assess their effects on short and long-term interest rates for 14 European countries between 1970 and 2015, in a panel and SUR analysis. We find that an increase in SFA reduces long- and short-term interest rates, with higher reductions for short-term rates. Furthermore, the decreasing effects of an increment in the stock-flow have reduced since the 2008–2009 financial crisis. As expected, there is also an upward push on both interest rates from a rise in sovereign indebtedness.

Keywords: Stock-flow adjustment; Debt; Interest rates; SUR; Panel data (search for similar items in EconPapers)
JEL-codes: C33 E43 H63 H83 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:31:y:2019:i:c:s1544612318302423

DOI: 10.1016/j.frl.2018.11.014

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