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Heterogeneity of the determinants of euro-area sovereign bond spreads; what does it tell us about financial stability?

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  • Georgoutsos, Dimitris A.
  • Migiakis, Petros M.

Abstract

In this paper, we assess the movements of euro area sovereign bond yield spreads vis-à-vis the German Bund as processes specified across different levels of volatility and subject to movements in asset prices and economic conditions. The determinants we use are grouped into domestic and euro-area aggregates, thus allowing us to derive results on their relative explanatory power and compare them across time and the spectrum of countries. We find that volatility influences the deterministic processes of the euro area sovereign spreads and that identical determinants have effects on spreads that vary considerably across countries. Furthermore, we find that variables reflecting investment confidence conditions and perceptions for the upcoming economic activity are significant determinants and their significance remains, to a large extent, even when controlling for fiscal variables.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 11 ()
Pages: 4650-4664

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4650-4664

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Keywords: Bond yield spreads; Euro area; Investment confidence; Financial stability;

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References

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Cited by:
  1. Marta Gómez-Puig & Simón Sosvilla-Rivero & María del Carmen Ramos-Herrera, 2014. "“An Update on EMU Sovereign Yield Spread Drivers in Times of Crisis: A Panel Data Analysis”," IREA Working Papers 201407, University of Barcelona, Research Institute of Applied Economics, revised Mar 2014.
  2. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2014. "“EMU sovereign debt market crisis: Fundamentals-based or pure contagion?”," IREA Working Papers 201402, University of Barcelona, Research Institute of Applied Economics, revised May 2014.

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