Sovereign bond yield spreads: A time-varying coefficient approach
We study the determinants of sovereign bond yield spreads across 10 EMU countries between Q1/1999 and Q1/2010. We apply a semiparametric time-varying coefficient model to identify, to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to altering risk pricing. We find that at the beginning of EMU, the government debt level and the general investors’ risk aversion had a significant impact on interest differentials. In the subsequent years, however, financial markets paid less attention to the fiscal position of a country and the safe haven status of Germany diminished in importance. By the end of 2006, two years before the fall of Lehman Brothers, financial markets began to grant Germany safe haven status again. One year later, when financial turmoil began, the market reaction to fiscal loosening increased considerably. The altering in risk pricing over time period confirms the need of time-varying coefficient models in this context.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 31 (2012)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/30443|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ejsing, Jacob & Sihvonen, Jukka, 2009. "Liquidity premia in German government bonds," Working Paper Series 1081, European Central Bank.
- 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.
- Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2012. "Sovereign risk premiums in the European government bond market," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 975-995.
- Orbe, Susan & Ferreira, Eva & Rodriguez-Poo, Juan, 2005.
"Nonparametric estimation of time varying parameters under shape restrictions,"
Journal of Econometrics,
Elsevier, vol. 126(1), pages 53-77, May.
- Rodríguez Poo, Juan M. & Ferreira García, María Eva & Orbe Mandaluniz, Susan, 2001. "Nonparametric estimation of time varying parameters under shape restrictions," BILTOKI 2001-02, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
- Christian Aßmann & Jens Hogrefe, 2009.
"Determinants of government bond spreads in the Euro area – in good times as in bad,"
Kiel Working Papers
1548, Kiel Institute for the World Economy.
- Christian Aßmann & Jens Boysen-Hogrefe, 2012. "Determinants of government bond spreads in the euro area: in good times as in bad," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(3), pages 341-356, August.
- Aßmann, Christian & Boysen-Hogrefe, Jens, 2009. "Determinants of government bond spreads in the Euro Area: in good times as in bad," Kiel Working Papers 1548, Kiel Institute for the World Economy (IfW).
- Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 503-532, October.
- Gómez-Puig, Marta, 2008.
"Monetary integration and the cost of borrowing,"
Journal of International Money and Finance,
Elsevier, vol. 27(3), pages 455-479, April.
- Marta Gomez Puig, 2005. "Monetary Integration and the Cost of Borrowing," Working Papers in Economics 134, Universitat de Barcelona. Espai de Recerca en Economia.
- Marta Gómez-Puig, "undated". "Monetary integration and the cost of borrowing," Working Papers on International Economics and Finance 05-05, FEDEA.
- Marta Gómez-Puig, 2005. "Monetary Integration And The Cost Of Borrowing," Working Papers 05-05, Asociación Española de Economía y Finanzas Internacionales.
- 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 2008 - 2015 388, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States," CEPR Discussion Papers 1088, C.E.P.R. Discussion Papers.
- Carlo Favero & Marco Pagano & Ernst-Ludwig von Thadden, 2007.
"How Does Liquidity Affect Government Bond Yields?,"
CSEF Working Papers
181, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Carlo Favero & Marco Pagano & Ernst-Ludwig von Thadden, 2007. "How Does Liquidity Affect Government Bond Yields?," Working Papers 323, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Favero, Carlo A. & Pagano, Marco & von Thadden, Ernst-Ludwig, 2008. "How Does Liquidity Affect Government Bond Yields?," CEPR Discussion Papers 6649, C.E.P.R. Discussion Papers.
- Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2006.
"Flight-to-Quality or Flight-to-Liquidity? Evidence From the Euro-Area Bond Market,"
NBER Working Papers
12376, National Bureau of Economic Research, Inc.
- Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2009. "Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 925-957, March.
- Mark Hallerberg & Guntram Wolff, 2008. "Fiscal institutions, fiscal policy and sovereign risk premia in EMU," Public Choice, Springer, vol. 136(3), pages 379-396, September.
- Peter C.B. Phillips, 2000.
"Trending Time Series and Macroeconomic Activity: Some Present and Future Challenges,"
Cowles Foundation Discussion Papers
1264, Cowles Foundation for Research in Economics, Yale University.
- Phillips, Peter C. B., 2001. "Trending time series and macroeconomic activity: Some present and future challenges," Journal of Econometrics, Elsevier, vol. 100(1), pages 21-27, January.
- Joon Y. Park & Peter C.B. Phillips, 1998.
"Nonlinear Regressions with Integrated Time Series,"
Cowles Foundation Discussion Papers
1190, Cowles Foundation for Research in Economics, Yale University.
- Heppke-Falk, Kirsten H. & Hüfner, Felix P., 2004. "Expected budget deficits and interest rate swap spreads - Evidence for France, Germany and Italy," Discussion Paper Series 1: Economic Studies 2004,40, Deutsche Bundesbank, Research Centre.
- Cai, Zongwu, 2007. "Trending time-varying coefficient time series models with serially correlated errors," Journal of Econometrics, Elsevier, vol. 136(1), pages 163-188, January.
- Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from the U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1046-59, November.
- Edda Zoli & Silvia Sgherri, 2009. "Euro Area Sovereign Risk During the Crisis," IMF Working Papers 09/222, International Monetary Fund.
- Kerstin Bernoth & Guntram B. Wolff, 2008.
"Fool The Markets? Creative Accounting, Fiscal Transparency And Sovereign Risk Premia,"
Scottish Journal of Political Economy,
Scottish Economic Society, vol. 55(4), pages 465-487, 09.
- Bernoth, Kerstin & Wolff, Guntram B., 2006. "Fool the markets? Creative accounting, fiscal transparency and sovereign risk premia," Discussion Paper Series 1: Economic Studies 2006,19, Deutsche Bundesbank, Research Centre.
- Kerstin Bernoth & Guntram Wolff, 2006. "Fool the markets? Creative accounting, fiscal transparency and sovereign risk premia," DNB Working Papers 103, Netherlands Central Bank, Research Department.
- Kerstin Bernoth & Guntram B. Wolff, 2006. "Fool the Markets? Creative Accounting, Fiscal Transparency and Sovereign Risk Premia," CESifo Working Paper Series 1732, CESifo Group Munich.
- Gerlach, Stefan & Schulz, Alexander & Wolff, Guntram B., 2010.
"Banking and sovereign risk in the euro area,"
Discussion Paper Series 1: Economic Studies
2010,09, Deutsche Bundesbank, Research Centre.
- Korajczyk, Robert A. & Sadka, Ronnie, 2008. "Pricing the commonality across alternative measures of liquidity," Journal of Financial Economics, Elsevier, vol. 87(1), pages 45-72, January.
- Pagano, Marco & von Thadden, Ernst-Ludwig, 2004.
"The European Bond Markets Under EMU,"
CEPR Discussion Papers
4779, C.E.P.R. Discussion Papers.
- Simone Manganelli & Guido Wolswijk, 2009. "What drives spreads in the euro area government bond market?," Economic Policy, CEPR;CES;MSH, vol. 24, pages 191-240, 04.
- Su, Liangjun & Ullah, Aman, 2006. "Profile likelihood estimation of partially linear panel data models with fixed effects," Economics Letters, Elsevier, vol. 92(1), pages 75-81, July.
- Dai, J. & Sperlich, S., 2010. "Simple and effective boundary correction for kernel densities and regression with an application to the world income and Engel curve estimation," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2487-2497, November.
- Gomez-Puig, Marta, 2006. "Size matters for liquidity: Evidence from EMU sovereign yield spreads," Economics Letters, Elsevier, vol. 90(2), pages 156-162, February.
- Michael J. Fleming, 2003.
"Measuring treasury market liquidity,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Sep, pages 83-108.
- Alois Geyer & Stephan Kossmeier & Stefan Pichler, 2004. "Measuring Systematic Risk in EMU Government Yield Spreads," Review of Finance, Springer, vol. 8(2), pages 171-197.
- David Haugh & Patrice Ollivaud & David Turner, 2009. "What Drives Sovereign Risk Premiums?: An Analysis of Recent Evidence from the Euro Area," OECD Economics Department Working Papers 718, OECD Publishing.
When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:31:y:2012:i:3:p:639-656. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.