Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/106144
Authors: 
Born, Benjamin
Müller, Gernot J.
Pfeifer, Johannes
Year of Publication: 
2014
Series/Report no.: 
SAFE Working Paper Series 77
Abstract: 
Policy makers often implement austerity measures when the sustainability of public finances is in doubt and, hence, sovereign yield spreads are high. Is austerity successful in bringing about a reduction in yield spreads? We employ a new panel data set which contains sovereign yield spreads for 31 emerging and advanced economies and estimate the effects of cuts of government consumption on yield spreads and economic activity. The conditions under which austerity takes place are crucial. During times of fiscal stress, spreads rise in response to the spending cuts, at least in the short-run. In contrast, austerity pays off, if conditions are more benign.
Subjects: 
austerity
confidence
fiscal policy
fiscal stress
local projections
panel VAR
sovereign risk
yield spreads
JEL: 
C32
E43
E62
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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