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The driving factors of EMU Government Bond Yields: the role of Debt, Liquidity and Fiscal Councils

This study presents empirical evidence about the determinants of long-term government bond yields for 19 economies of the European Monetary Union (EMU) over the period 1995–2018 within a multivariate panel framework. The fixed effects estimators reveal that the relationship between public debt to the GDP ratio and yields is non-linear. We observe a threshold, which is determined to be at the area 90% of the ratio of public debt to GDP. Beyond that, area government borrowing costs increase as the public debt rises.