Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153179
Authors: 
Manganelli, Simone
Wolswijk, Guido
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 745
Abstract: 
This paper studies the determinants of interest rate spreads of euro area 10 year government bonds against the benchmark, the German bund, after the introduction of the euro. In particular, it pays attention to the question whether market discipline is advanced or obstructed by financial integration and by fiscal rules like the Stability and Growth Pact. We first argue that financial integration – by improving market efficiency – is instrumental for markets to exert their disciplinary role. Next, we discuss the relationships between market discipline and fiscal rules, arguing that these in principle may reinforce each other. Finally, we provide strong empirical evidence that spreads depend on the ratings of the underlying bond and to a large extent are driven by the level of short-term interest rates.
Subjects: 
Bond spreads
Credit risk
liquidity risk
JEL: 
G12
G18
C23
Document Type: 
Working Paper

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