Rules and risk in the Euro area

Anna Iara and Guntram Wolff

European Journal of Political Economy, 2014, vol. 34, issue C, 222-236

Abstract: We show that stronger fiscal rules in Euro area members reduce sovereign risk premia, in particular in times of market stress. Using a unique data set of rules-based fiscal governance in EU member states, we estimate a model of sovereign spreads that are determined by the probability of default in interaction with the level of risk aversion. The legal base of the rules and their enforcement mechanisms are the most important dimensions of rules-based fiscal governance.

Keywords: Fiscal governance; Numerical fiscal rules; Sovereign spreads; Sovereign risk; Euro area (search for similar items in EconPapers)
JEL-codes: E62 G12 H63 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (68)

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Working Paper: Rules and risk in the euro area (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:34:y:2014:i:c:p:222-236

DOI: 10.1016/j.ejpoleco.2014.02.002

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