IMPACTS OF FISCAL IMBALANCES AND FISCAL ARRANGEMENTS ON SOVEREIGN BOND YIELDS

Abstract

The paper aims to investigate the impacts of fiscal imbalances and fiscal arrange- ments on sovereign bond yields. We apply recent data of IMF concerning the quality of fiscal rules and the effectiveness of fiscal councils and we analyse cases of devel- oped and developing countries, pointing out characteristic features for each case. Our research shows that while fiscal imbalances have positive correlation on interest rates of sovereign bonds, the level of quality and strength of fiscal arrangements provided by fiscal rules and fiscal councils have negative impacts.