Do Fiscal Rules Lower Government Financing Costs?

Antonio Afonso and Joao Jalles

No 2017/15, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We assess the effect of fiscal rules on sovereign bond yields over the short and medium-term, for 34 advanced countries and 21 emerging market economies, over the period 1980-2016. Our results, based on impulse response functios, show that the dynamic impact of fiscal rules on bond yields is negative and statistically significant, implyinglower government’s borrowing costs. This is a result stemming essetially from the advanced economies subsample. Moreover, in times of recession, a fiscal rule leads financial markets toreduce the risk premia on government bonds. Finally, when it comes to design features of fiscalrules, independent monitoring of compliance to the rule also reduces sovereign yields.

Keywords: fiscal rules; sovereign yields; financing costs; impulse response functions; local projection (search for similar items in EconPapers)
JEL-codes: C33 E44 E62 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp0152017

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