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Credit Risks and European Government Bond Markets: A Panel Data Econometric Analysis

Author

Listed:
  • Jan J.G. Lemmen

    (Financial Markets Group, London School of Economics)

  • Charles A.E. Goodhart

    (Financial Markets Group, London School of Economics)

Abstract

A fixed effects panel data estimation of the determinants of European government default risk is undertaken. Credit risk of sovereign debt is assessed by comparing yields on benchmark government bonds with high-quality private risk represented by interest rate swap yields. Using a new data-set from the European Commission (DG2's AMECO database), we find government default risk to depend positively on changes in the debt to GDP ratio and the variability of inflation and negatively on lagged inflation and changes in taxable capacity. Finally, there is evidence for persistence of government bond yield spreads reflecting differences in cross-country government default risk.

Suggested Citation

  • Jan J.G. Lemmen & Charles A.E. Goodhart, 1999. "Credit Risks and European Government Bond Markets: A Panel Data Econometric Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 25(1), pages 77-107, Winter.
    • Handle: RePEc:eej:eeconj:v:25:y:1999:i:1:p:77-107
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume25/V25N1P77_107.pdf
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    More about this item

    Keywords

    Bond Market; Bonds; Government Bonds; Interest Rates; Interest; Yield;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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