Afonso, AntónioJalles, João Tovar2016-01-152016-01-152015Afonso, António e João Tovar Jalles .2015. "The price relevance of fiscal developments". Instituto Superior de Economia e Gestão. DE Working papers nº 16-2015/DE/UECE2183-1815http://hdl.handle.net/10400.5/10676We use SURE estimation methods to assess the link between prices, bond yields and the fiscal behavior. A first equation determines the country-specific cost of government financing via the long-term government bond yield, as a function of budget balance positions. A second equation links the price level to the cost of government financing. Our results for 15 EU countries in the period 1980Q1-2013Q4, show that: improvements in the fiscal stance lead to persistent falls in sovereign yields; higher sovereign yields are reflected in upward price movements; improvements in the fiscal stance in recession times lead to short-term decreases in yields; better fiscal stance in expansions induce downward movement in bond yields only after 8 quarters.engPrice LevelYieldsRicardian RegimesSURELocal ProjectionImpulse Response Functionworking paper