Level, slope, curvature of the sovereign yield curve, and fiscal behaviour

Manuel Martins and Antonio Afonso

No 1276, Working Paper Series from European Central Bank

Abstract: We study fiscal behaviour and the sovereign yield curve in the U.S. and Germany in the period 1981:I-2009:IV. The latent factors, level, slope and curvature, obtained with the Kalman filter, are used in a VAR with macro and fiscal variables, controlling for financial stress conditions. In the U.S., fiscal shocks have generated (i) an immediate response of the short-end of the yield curve, associated with the monetary policy reaction, lasting between 6 and 8 quarters, and (ii) an immediate response of the longend of the yield curve, lasting 3 years, with an implied elasticity of about 80% for the government debt ratio shock and about 48% for the budget balance shock. In Germany, fiscal shocks entail no significant reactions of the latent factors and no response of the monetary policy interest rate. In particular, while (i) budget balance shocks created no response from the yield curve shape, (ii) surprise increases in the debt ratio caused some increase in the short-end and the long-end of the yield curve in the following 2nd and 3rd quarters. JEL Classification: E43, E44, E62, G15, H60

Keywords: financial markets; fiscal policy; yield curve (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-cba and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1276.pdf (application/pdf)

Related works:
Journal Article: Level, slope, curvature of the sovereign yield curve, and fiscal behaviour (2012)
Working Paper: Level, Slope, Curvature of Sovereign Yield Curve and Fiscal Behaviour (2010)
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:ecb:ecbwps:20101276

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().