Do (German) State Bond Markets Discount Politics
Series
Harvard University PEPG Research Papers
Type
working paper
Date Issued
2012
Author(s)
Abstract (De)
To what extent do bond market reactions to an unexpected deficit shock depend
on state-specific politics? To answer this question, we calculate German state bond
spreads over government benchmark paper using information from Datastream for
the period 2006-2010. We test for a variety of institutional and political factors.
We find evidence that investors base risk perceptions on state specific economic
and institutional characteristics. Further, in left-leaning Eastern German states, an
increase in unexpected deficit shock had a greater negative effect on a state's risk.
JEL Codes: E62, G18, G24, H71, H72, H74, H76, H77, N24, and P43
on state-specific politics? To answer this question, we calculate German state bond
spreads over government benchmark paper using information from Datastream for
the period 2006-2010. We test for a variety of institutional and political factors.
We find evidence that investors base risk perceptions on state specific economic
and institutional characteristics. Further, in left-leaning Eastern German states, an
increase in unexpected deficit shock had a greater negative effect on a state's risk.
JEL Codes: E62, G18, G24, H71, H72, H74, H76, H77, N24, and P43
Language
German
Keywords
Bond markets
financial crisis
fiscal debt
government finances
political economy
HSG Classification
contribution to scientific community
Refereed
No
Publisher place
Cambridge, MA
Number
12-01
Subject(s)
Division(s)
Eprints ID
208896
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Name
DoGermanStateBondMarketsDiscountPolitics_NadlerHongVonMuller.pdf
Size
1.19 MB
Format
Adobe PDF
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