Abstract
This article examines whether and to what extent non-scheduled and scheduled political events concerning the European fiscal governance have influenced the volatility of the euro risk premium. In particular, this study estimates how political behavior by the European Commission, the Economic and Financial Affairs Council, and the European Council has impacted the volatility of a time-varying risk premium of the euro vis-a-vis the US dollar and the Swiss franc. Analyzing daily data, the empirical results point to crucial shortcomings of the legal framework of European fiscal governance, which are detectable even in this legal framework’s early years.
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