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

Antonio Afonso, Joao Jalles () and Mina Kazemi

International Review of Law and Economics, 2020, vol. 63, issue C

Abstract: We assess the impact of announcements corresponding to different fiscal and monetary policy measures on 10-year sovereign bond yield spreads (relative to Germany) of 10 EMU countries during the period 01:1999-07:2016. Implementing country-fixed effects OLS regressions, we find that the European Commission’s (EC) releases of the excessive deficit procedure significantly affect yield spreads. The EC releases of higher debt and better budget balance forecasts contribute to the rise and the decline of spreads, respectively. Moreover, we find that the announcements of the ECB’s key interest rates together with the longer-term refinancing operations (LTROs) and the first covered bond purchase programme (CBPP1) negatively affect sovereign yield spreads in our sample of EMU countries. There was also some capital market mispricing of the sovereign bond risk in the Euro area before the Global Financial Crisis, notably regarding government debt forecasts.

Keywords: Sovereign yields; Fiscal policy; Monetary policy; Event analysis; Panel data (search for similar items in EconPapers)
JEL-codes: C23 E52 E62 G10 H63 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.irle.2020.105924

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