Bulletin n. 1-2/2014 | ||
November 2014 | ||
Iara Anna, Wolff Guntram B. |
||
Rules and risk in the Euro area | ||
in European Journal of Political Economy , Volume 34, June 2014 , 2014 , 222-236 | ||
We show that stronger fiscal rules in Euro area members reduce sovereign risk premia, in particular in times of market stress. Using a unique data set of rules-based fiscal governance in EU member states, we estimate a model of sovereign spreads that are determined by the probability of default in interaction with the level of risk aversion. The legal base of the rules and their enforcement mechanisms are the most important dimensions of rules-based fiscal governance. | ||