The impact of fiscal policy on the term structure of interest rates within the Eurozone



The conduct of fiscal policy, the term structure of interest rates and the integration of the economies
in the Eurozone have changed in the past decades. Little is known about cross-country bond yield
dynamics and their linkages to the real economy. In this project, we address this question by developing
a Bayesian multi-country framework consisting of a sequence of country-specific factor-augmented
vector autoregressive models that summarize yield curve and macroeconomic dynamics and allow for
interactions between the member states of the Eurozone. To control for time-variation in the structural
coefficients, we propose using a factor structure on the coefficients of the model coupled with a set
of shrinkage priors that allow for flexible model selection. Compared to the existing literature, we
explicitly consider different segments of the yield curve and assess how the treasury curves react to
fiscal policy shocks along different maturities. This enables us to provide a comprehensive view on
how treasury markets are linked to macroeconomic fundamentals and to shed light on the complex
relationship between term structure movements and the conduct of fiscal policy in the Eurozone.
Akronym Impact of fiscal policy
Tatsächlicher Beginn/ -es Ende1/11/1931/10/22