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Comparing the IMF and the ESM through Bond Market Premia in the Eurozone

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  • Kiss, Gábor Dávid
  • Csiki, Máté
  • Varga, János Zoltán

Abstract

In many European Union (EU) member countries, the financial turmoil that started in 2008 resulted in a banking and/or sovereign debt crisis. The EU did not have dedicated tools to handle the situation and it became clear that neither the IMF loans, nor the ad hoc intergovernmental loans provided satisfactory solutions. This motivated the establishment of the European Stability Mechanism (ESM). In this study, we compared the lending activity of the IMF and the ESM, their institutional background, and using panel regression methods we investigated the effect of EFSM-ESM loans on monthly sovereign bond yield premia. Results: The ESM programmes worked against bond market divergence, yield premia decreased, and they moved more closely together – which is a precondition of an efficient eurozone-wide monetary policy. Since EFSM-ESM bonds are guaranteed by euro area member states, it fulfils the solidarity principle of the optimum currency area, and with the help of EFSM-ESM programmes, sovereign defaults have been successfully avoided.

Suggested Citation

  • Kiss, Gábor Dávid & Csiki, Máté & Varga, János Zoltán, 2019. "Comparing the IMF and the ESM through Bond Market Premia in the Eurozone," Public Finance Quarterly, Corvinus University of Budapest, vol. 64(2), pages 277-293.
    • Handle: RePEc:pfq:journl:v:64:y:2019:i:2:p:277-293
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    File URL: https://unipub.lib.uni-corvinus.hu/8696/
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    References listed on IDEAS

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    1. Reinhart, Carmen & Kirkegaard, Jacob & Sbrancia, Belen, 2011. "Financial repression redux," MPRA Paper 31641, University Library of Munich, Germany.
    2. Benczes, István & Rezessy, Gergely, 2013. "Governance in Europe, Trends and Fault Lines," Public Finance Quarterly, Corvinus University of Budapest, vol. 58(2), pages 133-147.
    3. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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    Cited by:

    1. Mészáros Mercédesz & Kiss Gábor Dávid, 2020. "Spillover effects of unconventional monetary policy on capital markets in the shadow of the Eurozone: A sample of non-Eurozone countries," Review of Economic Perspectives, Sciendo, vol. 20(2), pages 171-195, June.

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    More about this item

    Keywords

    monetary policy; International Financial Markets; International Lending and Debt Problem; Panel Data Models;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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