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Recent estimates of sovereign risk premia for euro-area countries

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Author Info

  • Antonio Di Cesare

    ()
    (Bank of Italy)

  • Giuseppe Grande

    ()
    (Bank of Italy)

  • Michele Manna

    ()
    (Bank of Italy)

  • Marco Taboga

    ()
    (Bank of Italy)

Abstract

This paper examines the recent behavior of sovereign interest rates in the euro area, focusing on the 10 year yield spreads relative to Germany for Italy and other euro area countries. Both previous analyses and the new evidence presented in the paper suggest that, in recent months, for several countries the spread has increased to levels that are well above those that could be justified on the basis of fiscal and macroeconomic fundamentals. Among the possible reasons for this gap, the analysis focuses on the perceived risk of a break up of the euro area.

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File URL: http://www.bancaditalia.it/pubblicazioni/econo/quest_ecofin_2/qef128/QEF_128.pdf
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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 128.

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Date of creation: Sep 2012
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Handle: RePEc:bdi:opques:qef_128_12

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Web page: http://www.bancaditalia.it
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Related research

Keywords: interest rates; government yield spreads; sovereign risk premia; government debt; financial crisis; sovereign debt crisis; financial contagion; euro break up; convertibility risk;

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References

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  1. Bernoth, Kerstin & Erdogan, Burcu, 2012. "Sovereign bond yield spreads: A time-varying coefficient approach," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 639-656.
  2. Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2003. "Sovereign risk premia in the European government bond market," ZEI Working Papers B 26-2003, ZEI - Center for European Integration Studies, University of Bonn.
  3. Aizenman, Joshua & Hutchison, Michael & Jinjarak, Yothin, 2011. "What is the Risk of European Sovereign Debt Defaults? Fiscal Space, CDS Spreads and Market Pricing of Risk," Santa Cruz Department of Economics, Working Paper Series qt2914v9fh, Department of Economics, UC Santa Cruz.
  4. Salvador Barrios & Per Iversen & Magdalena Lewandowska & Ralph Setzer, 2009. "Determinants of intra-euro area government bond spreads during the financial crisis," European Economy - Economic Papers 388, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Bernoth, Kerstin & Hagen, Jürgen von & Schuknecht, Ludger, 2006. "Sovereign Risk Premiums in the European Government Bond Market," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 151, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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