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

Type Research Project

Funding Bodies

Duration Nov. 1, 2019 - Oct. 31, 2022

  • Information Systems and Society IN (Details)
  • Institute for Macroeconomics IN (Details)


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  • Fischer, Manfred M. (Details) Project Head
  • Hauzenberger, Niko (Details)
  • Huber, Florian (Former researcher) Project Head
  • Kritzinger, Mara (Details)
  • Pfarrhofer, Michael (Details)
  • Zörner, Thomas (Details)

Abstract (English)

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.


  • Paris Lodron University Salzburg - Austria