Policy Credibility and Sovereign Credit: The Case of New EU Member States

Author/Editor:

Manmohan S. Kumar ; Jirí Jonáš ; David Hauner

Publication Date:

January 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

References to policy credibility, particularly with regard to fiscal policy, are ubiquitous in both economic literature and financial markets, even though it is not directly observable. The case of the EU new member states (NMS)-emerging markets joining a supranational entity that is generally considered to have higher policy credibility-provides a unique experiment to assess the effects of credibility on sovereign credit. This paper examines the impact of EU accession on three key variables that can reflect in varying degrees policy credibility: sovereign ratings, foreign currency spreads, and local currency yields. The results suggest that the NMS appear to have enjoyed higher credibility compared to their peers.

Series:

Working Paper No. 2007/001

Subject:

Balance of payments Currencies Current account balance Emerging and frontier financial markets Financial markets Financial services Inflation Money Prices Real interest rates

English

Publication Date:

January 1, 2007

ISBN/ISSN:

9781451865653/1018-5941

Stock No:

WPIEA2007001

Pages:

29

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