| Resumo: | We assess the effect of fiscal rules on sovereign bond yields over the short and medium-term, for 34 advanced countries and 21 emerging market economies, over the period 1980-2016. Our results, based on impulse response functions, show that the dynamic impact of fiscal rules on bond yields is negative and statistically significant, implying lower government’s borrowing costs. This is a result stemming essentially from the advanced economies subsample. Moreover, in times of recession, a fiscal rule leads financial markets to reduce the risk premia on government bonds. Finally, when it comes to design features of fiscal rules, independent monitoring of compliance to the rule also reduces sovereign yields.
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