Long-term public debt projections and government bond yields: Panel analysis for EU
Long-term public debt projections and government bond yields: Panel analysis for EU

Summary/Abstract: Commission to examine whether they influence market pricing of government debt in the European Union (EU) economies. We find that while current debt burdens and, in particular, primary balance affect the government bond yields, the markets pay less attention to long-term debt projections. It would suggest that either the EC debt projections do not coincide with debt expectations of financial market agents or that financial markets, given uncertainty of forecasts prepared in such horizon, are myopic and focus on currently observed phenomena. We also show that the impact of long-term debt projections on government bond yield spreads is stronger in the new EU member states that joined EU after2004 than in the remaining EU economies.

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