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Sovereign risk premia: the link between fiscal rules and stability culture

There is a growing empirical literature studying whether permanent constraints on fiscal policy, such as fiscal rules, reduce sovereign risk premia. Nevertheless, it remains an open question whether these rules are effective genuinely or just because they mirror fiscal preferences of politicians and...

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Bibliographic Details
Main Authors: Heinemann, Friedrich (Author) , Osterloh, Steffen (Author) , Kalb, Alexander (Author)
Format: Article (Journal)
Language:English
Published: March 2014
In: Journal of international money and finance
Year: 2014, Volume: 41, Pages: 110-127
ISSN:0261-5606
DOI:10.1016/j.jimonfin.2013.11.002
Online Access:Verlag, lizenzpflichtig, Volltext: https://doi.org/10.1016/j.jimonfin.2013.11.002
Verlag, lizenzpflichtig, Volltext: http://www.sciencedirect.com/science/article/pii/S026156061300171X
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Author Notes:Friedrich Heinemann, Steffen Osterloh, Alexander Kalb
Description
Summary:There is a growing empirical literature studying whether permanent constraints on fiscal policy, such as fiscal rules, reduce sovereign risk premia. Nevertheless, it remains an open question whether these rules are effective genuinely or just because they mirror fiscal preferences of politicians and voters. In our analysis of European bond spreads before the financial crisis, we shed light on this issue by employing several types of stability preference related proxies. These proxies refer to a country's past stability performance, government characteristics and survey results related to general trust. We find evidence that these preference indicators affect sovereign bond spreads and dampen the measurable impact of fiscal rules. Yet, the interaction of stability preferences and rules points to a particular potential of fiscal rules to restore market confidence in countries with a historical lack of stability culture.
Item Description:Gesehen am 22.09.2020
Physical Description:Online Resource
ISSN:0261-5606
DOI:10.1016/j.jimonfin.2013.11.002

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