Fiscal policy and the Term Premium in Real Interest Rate Di¤erentials
نویسندگان
چکیده
This paper seeks to identify the source of the risk premium in real interest rate di¤erentials across European countries. In particular, we examine the link between real interest rate di¤erentials, existing between various European countries and Germany, and domestic ...scal policy as proxied by the Debt/GDP ratios in these countries. Our results provide strong evidence that this variable exerts a signi...cant in‡uence on the determination of both the level and the volatility of the di¤erential for both long term and short term interest rates. This is a noteworthy result bearing in mind the Maastricht criteria for European Monetary Union and the importance attached to convergence of Debt/GDP ratios.
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