Budgetary decomposition and yield spreads

António Afonso, João Tovar Jalles

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


With a panel VAR of 10 Euro area countries, we studied the budgetary determinants of government bond yield spreads vis-à-vis Germany between 1999Q1 and 2012Q4. We find that rising bid ask, VIX and debt differentials increase yield spreads; and improvements in the budget balance, higher growth prospects and depreciation lower the spreads. Moreover, rises in public wages or in social expenditure increase spreads, while increases in direct and indirect taxes lower the yield spreads. In the post-2007Q3 crisis period, rising expenditure components (except subsidies) increased spreads.

Original languageEnglish
Pages (from-to)1093-1098
Number of pages6
JournalApplied Economics Letters
Issue number15
Publication statusPublished - 12 Oct 2016


  • bond yields
  • Fiscal components
  • great recession
  • impulse responses
  • PVAR


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