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Expectations and Systemic Risk in EMU Government Bond Spreads

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  • Canofari, Paolo

    (LUISS School of European Political Economy)

  • Marini, Giancarlo

    (University of Rome II - Faculty of Economics)

  • Piersanti, Giovanni

    (Università degli Studi di Teramo)

Abstract

This paper explores the determinants of 10-years sovereign bond spreads over the German Bund benchmark in the Euro Zone from 2000 to 2013, relying on cross-country quarterly data panel analysis. The paper focal point is the role of contagion and euro break-up risks in widening the sovereign bond yield differentials among EU member countries. Using a novel synthetic index capable of monitoring the sustainability of currency unions, the paper finds that market expectations of a euro’s break up and contagion from Greece were fundamentals drivers of sovereign risk premia in peripheral countries.

Suggested Citation

  • Canofari, Paolo & Marini, Giancarlo & Piersanti, Giovanni, 2014. "Expectations and Systemic Risk in EMU Government Bond Spreads," LEAP Working Papers 2014/1, Luiss Institute for European Analysis and Policy.
    • Handle: RePEc:ris:sepewp:2014_001
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    Cited by:

    1. Paolo Canofari & Giovanni Di Bartolomeo & Giovanni Piersanti, 2015. "Strategic Interactions and Contagion Effects under Monetary Unions," The World Economy, Wiley Blackwell, vol. 38(10), pages 1618-1629, October.
    2. Alberto Bagnai & Brigitte Granville & Christian Alexander Mongeau Ospina, 2017. "Withdrawal of Italy from the Eurozone: stochastic simulations of a structural macroeconometric model," a/ Working Papers Series 1702, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
    3. Paolo Canofari & Alessandro Ponte, 2018. "Chinese and European Financial Systems: Instability Drivers and Contagion Channels," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(4), pages 311-324, November.
    4. Hamill, Philip A. & Li, Youwei & Pantelous, Athanasios A. & Vigne, Samuel A. & Waterworth, James, 2021. "Was a deterioration in ‘connectedness’ a leading indicator of the European sovereign debt crisis?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    5. Bagnai, Alberto & Granville, Brigitte & Mongeau Ospina, Christian A., 2017. "Withdrawal of Italy from the euro area: Stochastic simulations of a structural macroeconometric model," Economic Modelling, Elsevier, vol. 64(C), pages 524-538.
    6. Paolo Canofari & Giancarlo Marini & Giovanni Piersanti, 2014. "Measuring Currency Pressure and Contagion Risks in Countries under Monetary Unions: The Case of Euro," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(4), pages 455-469, December.
    7. Szczypińska, Agnieszka, 2014. "Does the halo effect still hold? The (post-) crisis perspective for the euro candidates," MF Working Papers 18, Ministry of Finance in Poland, revised 30 Jan 2014.
    8. Canofari, Paolo & Piergallini, Alessandro & Piersanti, Giovanni, 2020. "The Fallacy Of Fiscal Discipline," Macroeconomic Dynamics, Cambridge University Press, vol. 24(1), pages 55-68, January.
    9. Leschinski, Christian & Bertram, Philip, 2017. "Time varying contagion in EMU government bond spreads," Journal of Financial Stability, Elsevier, vol. 29(C), pages 72-91.

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    More about this item

    Keywords

    Monetary unions; speculative attacks; self-fulfilling expectations; multiple equilibria; shadow exchange rate; financial crisis; contagion; spreads; sovereign default risk; euro break up risk;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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