Market Discipline and the Use of Government Bonds as Collateral in the EMU


Ullrich, Katrin


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URL: http://ub-madoc.bib.uni-mannheim.de/1370
URN: urn:nbn:de:bsz:180-madoc-13708
Document Type: Working paper
Year of publication: 2006
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: E51 G12 H63 E52 ,
Subject headings (SWD): European Mineralogical Union , Europäische Union / Stabilitätspakt , Kreditmarkt
Abstract: The confidence that financial markets are able to discipline the debt behaviour of governments is not very high. Therefore, the Stability and Growth Pact has been implemented as an institutional constraint to substitute for the market mechanism. With the weakening of the Pact, market discipline could gain importance again. To strengthen market discipline, reasons for its failure in the euro area have to be analysed. One possible reason could be that the European Central Bank accepts all European government bonds without distinction in its monetary policy auctions as collateral. This could provide the financial market with a signal that these government securities are equally (non-)risky and that a differentiation with respect to risk premia is not needed.
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Ullrich, Katrin (2006) Market Discipline and the Use of Government Bonds as Collateral in the EMU. Open Access [Working paper]
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