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The pricing of G7 sovereign bond spreads: the times, they are a-changin

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  • D'Agostino, Antonello
  • Ehrmann, Michael

Abstract

Against the background of the current debate about fiscal sustainability in several advanced economies, this paper estimates determinants of G7 sovereign bond spreads, using high‐frequency proxies for market expectations about macroeconomic fundamentals and allowing for time‐varying parameters. The paper finds substantial asymmetry in the importance of country fundamentals and considerable time variations in the pricing of risks. There has been a reduced pricing of several risk factors in the years preceding the financial crisis, and either an overpricing of risk or the pricing of a re‐denomination risk of euro area bonds during the European sovereign debt crisis. JEL Classification: E43, E44, F34, G15

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Paper provided by European Central Bank in its series Working Paper Series with number 1520.

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Date of creation: Mar 2013
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Handle: RePEc:ecb:ecbwps:20131520

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Keywords: Fiscal Policy; Sovereign Spreads; time‐varying coefficients;

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Cited by:
  1. Patricia Crifo & Marc-Arthur Diaye & Rim Oueghlissi, 2014. "Measuring the effect of government ESG performance on sovereign borrowing cost," Working Papers hal-00951304, HAL.
  2. António Afonso, & Michael G. Arghyrou, & George Bagdatoglou, & Alexandros Kontonikas, 2013. "On the time-varying relationship between EMU sovereign spreads and their determinants," Working Papers Department of Economics 2013/05, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  3. Ippei Fuijwara & Lena Mareen Korber & Daisuke Nagakura, 2013. "Asymmetry in Government Bond Returns," Macroeconomics Working Papers 23399, East Asian Bureau of Economic Research.
  4. Beirne, John & Fratzscher, Marcel, 2013. "The pricing of sovereign risk and contagion during the European sovereign debt crisis," Working Paper Series 1625, European Central Bank.
  5. Daisuke Nagakura & Lena Mareen Korber & Ippei Fujiwara, 2013. "Asymmetry in government bond returns," AJRC Working Papers 01, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  6. repec:csg:ajrcwp:1301 is not listed on IDEAS

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