Debt And Interest Rates: Lessons From European Monetary Union

This paper addresses the relationship between debt and interest rates within the context of the European Monetary Union which, after ten years since its creation, constitutes a convenient framework to test any sensible explanation. The author's findings highlight that a substantial fraction of European interest rate is accounted for by domestic fiscal fundamentals. Identification of the relative importance of fiscal variables requires joint modeling of international rates to distinguish between the effects of their common dynamics from credit risk implications of worsening fiscal conditions. The estimated model also quantifies liquidity premia.

Provided by: Universita degli Studi di Milano Topic: Data Management Date Added: Oct 2010 Format: PDF

Find By Topic