DP720 | Understanding the High Interest Rates on Italian Government Securities

Publication Date

03/10/1992

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Abstract

This paper discusses several determinants of the differential between yields on Italian government securities and yields on foreign government securities. We concentrate on expectations of (at least partial) insolvency, tax factors and exchange rate expectations. The evidence suggests that most of the differential between the cost of Italian debt and the cost of foreign (for example, German) debt is due to exchange rate expectations.