Level, slope, curvature of the sovereign yield curve, and fiscal behaviour

• Type: Article in International Scientific Journal
• Date: 2012

Authors

António Afonso (Author) Other; Manuel Mota Freitas Martins (Author) FEP

Journal

Title: JOURNAL OF BANKING & FINANCE

Vol. 36 No. 6

Pages: 1789-1807

ISSN: 0378-4266

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 45 Citations

ISI Web of Science

Scopus - 50 Citations

Econlit

Scientific classification

FOS: Social sciences > Economics and Business

CORDIS: Social sciences > Economics

Other information

Authenticus ID: P-002-9VM

DOI: 10.1016/j.jbankfin.2012.02.004

Abstract (EN): We study fiscal behaviour and the sovereign yield curve in the US and Germany. We obtain the latent factors, level, slope and curvature, with the Kalman filter, and use them in a VAR with macro, fiscal and financial stress variables. In the US, fiscal shocks generate an immediate response of the short-end of the yield curve, associated with monetary policy, lasting 6–8 quarters, followed by a response of the whole yield curve lasting 3 years, with an implied elasticity of long-term yields of 80% for the government debt shock and 48% for the budget balance shock. In Germany, fiscal shocks have entailed no significant reactions of the yield curve shape and no response of the monetary policy interest rate, notably after 1999; only in the case of debt shocks there is a short-lived decrease in the medium-end of the yield curve in the following 2nd and 3rd quarters.

Language: English

Type (Professor's evaluation): Scientific