Skip to main content
SpringerLink
Log in

When Bond Markets Attack

  • Chapter
  • First Online:
Macroeconomic Policy after the Crash

  • 496 Accesses

Abstract

This section is about what happens when the public finances deteriorate to the point that market participants or even the general public reach the conclusion that debt may be on an unsustainable path and something needs to be done—whether that be fiscal consolidation, financial repression, inflating away debt or a formal restructuring. There is little agreement on where this point lies for an advanced economy like the UK, or how policymakers should respond if the public finances approach that danger zone, and in what follows we shall review the key issues.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 64.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 84.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Acharya, V., & Steffen, S. (2013). The “greatest” carry trade ever?. NBER Working Paper 19039.

    Google Scholar 

  • Ardagna, S., & Caselli, F. (2014). The political economy of the Greek debt crisis. American Economic Journal: Macroeconomics, 6(4), 291–323.

    Google Scholar 

  • Ardagna, S., Caselli, F., & Lane, T. (2004). Fiscal discipline and the cost of public debt service. NBER Working Paper 10788.

    Google Scholar 

  • Bannerjee, A. (1992). A simple model of herd behaviour. Quarterly Journal of Economics, 67(3), 797–817.

    Article  Google Scholar 

  • Barwell, R. (2013). Macroprudential policy: Taming the wild gyrations of credit flows, debt stocks and asset prices. New York: Palgrave.

    Book  Google Scholar 

  • Beetsma, R., Giuliodori, M., de Jong, F., & Widijanto, D. (2013). Price effects of sovereign debt auctions in the Euro-zone. ECB Working Paper 1595.

    Google Scholar 

  • Blanchard, O. (1990b). Suggestions for a new set of fiscal indicators. OECD Working Paper 79.

    Google Scholar 

  • Bohn, H. (1995). The sustainability of budget deficits in a stochastic economy. Journal of Money, Credit and Banking, 27(1), 257–271.

    Article  Google Scholar 

  • Calvo, G. (1988). Servicing the public debt. American Economic Review, 78(4), 647–661.

    Google Scholar 

  • Cass, D., & Shell, K. (1983). Do sunspots matter? Journal of Political Economy, 91(21), 193–228.

    Article  Google Scholar 

  • Chalk, N., & Hemming, R. (2000). Assessing fiscal sustainability in theory and practice. IMF Working Paper 00/81.

    Google Scholar 

  • Cochrane, J. (2005). Asset pricing. Princeton: Princeton University Press.

    Google Scholar 

  • Cochrane, J. (2011a). Determinacy and identification with Taylor rules. Journal of Political Economy, 119(3), 565–615.

    Article  Google Scholar 

  • Cœuré, B. (2013, September 2). Outright Monetary Transactions, one year on. Speech.

    Google Scholar 

  • Cole, H., & Kehoe, T. (2000). Self-fulfilling debt crises. Review of Economic Studies, 67(1), 91–116.

    Article  Google Scholar 

  • Cooper, R., & Nikolov, K. (2013). Sovereign debt and banking fragility. NBER Working Paper 19278.

    Google Scholar 

  • Corsetti, G., Kuester, K., Meier, A., & Mueller, G. (2012). Sovereign risk, fiscal policy and macroeconomic stability. IMF Working Paper 12/33.

    Google Scholar 

  • De Santis, R. (2012). The euro area sovereign debt crisis. ECB Working Paper 1419.

    Google Scholar 

  • DeLong, J., Shleifer, A., Summers, L., & Waldmann, R. (1990a). Positive feedback investment strategies and destabilising rational speculation. Journal of Finance, 45(2), 379–395.

    Article  Google Scholar 

  • DeLong, J., Shleifer, A., Summers, L., & Waldmann, R. (1990b). Noise trader risk in financial markets. Journal of Political Economy, 98(4), 703–738.

    Article  Google Scholar 

  • Diamond, D., & Dybvig, P. (1983). Bank runs, deposit insurance and liquidity. Journal of Political Economy, 91(3), 401–419.

    Article  Google Scholar 

  • ECB. (2014). The determinants of euro area sovereign bond yield spreads during the crisis. ECB Monthly Bulletin, May, 67–83.

    Google Scholar 

  • Engen, E., & Hubbard, G. (2004). Federal government debts and interest rates. NBER Working Paper 10681.

    Google Scholar 

  • Frankel, J., & Rose, A. (1998). The endogeneity of optimal currency area criteria. Economic Journal, 108, 1009–1025.

    Google Scholar 

  • Hjelm, G. (2004). When are fiscal contractions successful? Lessons for countries within and outside the EMU. National Institute of Economic Research Working Paper 92.

    Google Scholar 

  • Lane, P. (2012). The European sovereign debt crisis. Journal of Economic Perspectives, 26(3), 49–68.

    Article  Google Scholar 

  • Laubach, T. (2009). New evidence on the interest rate effects of budget deficits and debt. Journal of the European Economic Association, 7(4), 858–885.

    Article  Google Scholar 

  • Laubach, T. (2011). Fiscal policy and interest rates. In R. Clarida & F. Giavazzi (Eds.), NBER international seminar on macroeconomics. Chicago: NBER.

    Google Scholar 

  • Longstaff, F., Pan, J., Pedersen, L., & Singleton, K. (2011). How sovereign is sovereign credit risk? American Economic Journal: Macroeconomics, 3, 75–103.

    Google Scholar 

  • Manganelli, S., & Wolswijk, G. (2009). What drives spreads in the euro-area government bond market? Economic Policy, 24, 191–240.

    Article  Google Scholar 

  • Mody, A., & Sandri, D. (2011). The Eurozone crisis: How banks and sovereigns came to be joined at the hip. IMF Working Paper 11/269.

    Google Scholar 

  • Mundell, R. (1961). A theory of optimal currency area. American Economic Review, 51(4), 657–665.

    Google Scholar 

  • Neri, S. (2013). The impact of the sovereign debt crisis on bank lending rates in the euro area. Bank of Italy Occasional Paper 170.

    Google Scholar 

  • Shiller, R. (2003). From efficient markets theory to behavioural finance. Journal of Economic Perspectives, 17(1), 29–48.

    Article  Google Scholar 

  • Shleifer, A., & Vishny, R. (1997). The limits of arbitrage. Journal of Finance, 52(1), 35–55.

    Article  Google Scholar 

  • Slemrod, J. (2007). Cheating ourselves: The economics of tax evasion. Journal of Economic Perspectives, 21(1), 25–48.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. BNP Paribas Investment Partners, Dartford, UK

    Richard Barwell

Authors
  1. Richard Barwell
    View author publications

    You can also search for this author in PubMed Google Scholar

Copyright information

© 2016 The Author(s)

About this chapter

Cite this chapter

Barwell, R. (2016). When Bond Markets Attack. In: Macroeconomic Policy after the Crash . Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-51592-6_13

Download citation

  • DOI: https://doi.org/10.1057/978-1-137-51592-6_13

  • Published:

  • Publisher Name: Palgrave Macmillan, London

  • Print ISBN: 978-1-137-51591-9

  • Online ISBN: 978-1-137-51592-6

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation