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“An Update on EMU Sovereign Yield Spread Drivers in Times of Crisis: A Panel Data Analysis”

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  • Marta Gómez-Puig

    ()
    (Faculty of Economics, University of Barcelona)

  • Simón Sosvilla-Rivero

    ()
    (Department of Quantitative Economics, Universidad Complutense de Madrid)

  • María del Carmen Ramos-Herrera

    ()
    (Department of Quantitative Economics, Universidad Complutense de Madrid)

Abstract

We empirically investigate the determinants of EMU sovereign bond yield spreads with respect to the German bund. Using panel data techniques, we examine the role of a wide set of potential drivers. To our knowledge, this paper presents one of the most exhaustive compilations of the variables used in the literature to study the behaviour of sovereign yield spreads and, in particular, to gauge the effect on these spreads of changes in market sentiment and risk aversion. We use a sample of both central and peripheral countries from January 1999 to December 2012 and assess whether there were significant changes after the outbreak of the euro area debt crisis. Our results suggest that the rise in sovereign risk in central countries can only be partially explained by the evolution of local macroeconomic variables in those countries. Besides, without exception, the marginal effects of sovereign spread drivers (specifically, the variables that measure global market sentiment) increased during the crisis compared to the pre-crisis period, especially in peripheral countries.

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Bibliographic Info

Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 201407.

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Length: 38 pages
Date of creation: Mar 2014
Date of revision: Mar 2014
Handle: RePEc:ira:wpaper:201407

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Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/
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Keywords: Sovereign bond spreads; Panel data; Eurozone. JEL classification: C33; C52; E44; F36; G15;

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