Fiscal spillovers in the Euro area |
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| Institution: | 1. Department of Economics, Università Ca’ Foscari Venezia, Fondamenta San Giobbe 873, Venezia, 30121, Italy;2. Institute of Finance, Università della Svizzera italiana and Swiss Finance Institute, Via Buffi 13, Lugano, 6900, Switzerland;1. European Stability Mechanism, Luxembourg, Luxembourg;2. European Central Bank, Frankfurt am Main, Germany;3. Central Bank of Ireland, Dublin, Ireland;1. Department of Economics and Regional Development, Panteion University of Social and Political Sciences, 136 Syngrou Avenue, GR17671 Athens, Greece;2. Department of Accounting, Finance and Economics, Ulster University, Shore Road, Newtownabbey BT37 0QB, UK;3. Department of Accounting, Finance and Economics, Bournemouth University, Executive Business Centre, 89 Holdenhurst Road, BH8 8EB Bournemouth, UK;4. Department of Statistics, Athens University of Economics and Business, 76 Patission str., Athens 10 434, Greece |
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| Abstract: | This paper analyses the dynamic effects of fiscal imbalances in a given EMU member state on the borrowing costs of other countries in the euro area. The estimation of a multivariate, multi-country time series model (specifically a Global VAR, or GVAR) using quarterly data for the EMU period suggests that euro-denominated government yields are strongly linked with each other. However, financial markets seem to be able to discriminate among different issuers. Consequently, fiscal imbalances in Italy and in other peripheral countries should be closely monitored by their EMU partners and the European institutions. |
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| Keywords: | Global VAR methodology Fiscal spillovers Euro area Public debt C32 E62 F42 H63 |
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