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Title:Market discipline and the use of government bonds as collateral in the EMU PDF Logo
Authors:Ullrich, Katrin
Issue Date:2006
Series/Report no.:ZEW Discussion Papers 06-46
Abstract:The confidence that financial markets are able to discipline the debt behaviour of governments is not very high. Therefore, the Stability and Growth Pact has been implemented as an institutional constraint to substitute for the market mechanism. With the weakening of the Pact, market discipline could gain importance again. To strengthen market discipline, reasons for its failure in the euro area have to be analysed. One possible reason could be that the European Central Bank accepts all European government bonds without distinction in its monetary policy auctions as collateral. This could provide the financial market with a signal that these government securities are equally (non-)risky and that a differentiation with respect to risk premia is not needed.
Subjects:Stability and Growth Pact
Market Discipline
Collateral
Repo
JEL:H63
G12
E52
E51
Document Type:Working Paper
Appears in Collections:ZEW Discussion Papers
Publikationen von Forscherinnen und Forschern des ZEW

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