Regime-dependent sovereign risk pricing during the Euro crisis
Journal
Review of Finance
Subject
Economics
Publishing details
Authors / Editors
Delatte A-L;Fouquau J;Portes R
Biographies
Publication Year
2016
Abstract
Previous work has documented a greater sensitivity of long-term government bond yields to fundamentals in euro area peripheral countries during the euro crisis, but we know little about the driver(s) of regime switches. Our estimates based on a panel smooth threshold regression model quantify and explain them: (1) investors have penalized a deterioration of fundamentals more strongly from 2010 to 2012; (2) the higher the bank credit risk, measured with the premium on credit derivatives, the higher the extra premium on fundamentals; (3) after ECB President Draghi’s speech in July 2012, it took 1 year to restore the noncrisis regime and suppress the extra premium.
Keywords
European sovereign crisis; Panel smooth transition regression models; CDS indices
Publication Notes
Published online 7th October 2016
Available on ECCH
No
