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

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  • 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.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume25/V25N1P77_107.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 25 (1999)
Issue (Month): 1 (Winter)
Pages: 77-107

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Handle: RePEc:eej:eeconj:v:25:y:1999:i:1:p:77-107

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Keywords: Bond Market; Bonds; Government Bonds; Interest Rates; Interest; Yield;

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