Abstract
The paper by Faini focuses on the relationship between fiscal policy and interest rates. With reference to the European context, the paper addresses two issues. First, it investigates whether national fiscal policies either affect country specific spreads or the average level of euro-area interests rates. Only in the latter case there are significant externalities on the area from national misbehaviour. Second, it discusses whether this negative externality is likely to be more important for high-debt countries. The empirical analysis shows that while national fiscal policy has a limited impact on spreads, it has a more important impact on the area interest rates. Moreover, lack of fiscal discipline in high debt countries has a stronger impact on interest rates. Nevertheless, the problem is not high debt per se, but high debt together with lack of fiscal discipline.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.