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Please use this identifier to cite or link to this item: http://hdl.handle.net/10400.5/2861

Title: Level, slope, curvature of sovereign yield curve and fiscal behaviour
Authors: Afonso, António
Martins, Manuel M. F.
Keywords: Yield curve
Fiscal policy
Financial markets
Issue Date: 2010
Publisher: ISEG - Departamento de Economia
Citation: Afonso, António e Manuel M. F. Martins. 2010. "Level, slope, curvature of sovereign yield curve and fiscal behaviour". Instituto Superior de Economia e Gestão. DE Working papers; nº 23/2010./UECE
Series/Report no.: DE Working papers; nº23-2010/UECE
Abstract: We study fiscal behaviour and the sovereign yield curve in the U.S. and Germany in the period 1981:I-2009:IV. The latent factors, level, slope and curvature, obtained with the Kalman filter, are used in a VAR with macro and fiscal variables, controlling for financial stress conditions. In the U.S., fiscal shocks have generated (i) an immediate response of the short-end of the yield curve, associated with the monetary policy reaction, lasting between 6 and 8 quarters, and (ii) an immediate response of the longend of the yield curve, lasting 3 years, with an implied elasticity of about 80% for the government debt ratio shock and about 48% for the budget balance shock. In Germany, fiscal shocks entail no significant reactions of the latent factors and no response of the monetary policy interest rate. In particular, while (i) budget balance shocks created no response from the yield curve shape, (ii) surprise increases in the debt ratio caused some increase in the short-end and the long-end of the yield curve in the following 2nd and 3rd quarters.
URI: http://hdl.handle.net/10400.5/2861
ISSN: 0874-4548
Appears in Collections:UECE - Documentos de Trabalho / UECE - Working Papers
DE - Documentos de trabalho / Working Papers

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