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The effect of fiscal announcements on interest spreads: Evidence from the Netherlands

Jasper De Jong

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: We estimate the effect of consolidation efforts on investors' perception of government's solvency. To this end, we analyze announcements by Dutch government officials between September 2008 and December 2014 and select those messages that contain relevant new information on the likelihood and substance of consolidation packages. We then scrutinize whether announcements affect the yield spread of Dutch ten year government bonds vis-à-vis German bonds. Our findings indicate that announcements hinting at improvements in the budget balance significantly lowered yield spreads. As most announcements involve events during the negotiation process on consolidation packages rather than the official date of agreement or implementation of these packages, our results illustrate the importance of accurately assessing the news content of messages.

Keywords: Fiscal policy announcements; Consolidation measures; Interest spreads; Political processes; Global financial crisis (search for similar items in EconPapers)
JEL-codes: E43 E62 G01 G12 H61 H62 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-eec and nep-mac
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