Rising long-term interest rates: Is the European bond market overshooting?

Please note: Each In-Depth Analysis is assigned a DOI (digital object identifier), which is a safe and long term way of ensuring a hyperlink to the full text of this report. However, when ESO creates this record, on occasion the DOI still has not been activated by the EU Bookshop. If you find the source url hyperlink does not work please use the alternative location hyperlink listed as a related url.The authors find a wide range of effects from rising interest rates, mostly small and mostly negative, focused on investment spending, debt service costs and shrinking fiscal space. The recommendation for the ECB is not to react till the emerging European recovery is on a firmer basis. There is also the worry that rising/overshooting interest often reflect the fact that inflation risks are unequally distributed: larger in some places, but offset by their absence elsewhere. That is a matter for domestic policy, not ECB policy.

ESO: Background information: Servicing government debt: The impact of rising interest rates (EPRS: Briefing, March 2017) http://www.europeansources.info/record/servicing-government-debt-the-impact-of-rising-interest-rates/

European Parliament: European Parliamentary Research Service: In-Depth Analysis, May 2017: Rising long-term interest rates: Is the European bond market overshooting? http://www.europarl.europa.eu/RegData/etudes/IDAN/2017/602044/IPOL_IDA(2017)602044_EN.pdf

---