Wealth-to-income ratio, government bond yields and financial stress in the Euro Area
I show that when the ratio of asset wealth to human wealth, wy , falls, investors become more exposed to idiosyncratic shocks and demand a higher government bond risk premium. Using data for the Euro Area as a whole and conditioning the forecasting ability of wy on the financial stress conditions, one is able to track better future time-variation in risk premium.
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Volume (Year): 19 (2012)
Issue (Month): 11 (July)
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