Towards a Common European Monetary Union Risk Free Rate
A common European bond would yield a common European Monetary Union risk free rate. We present tentative estimates of this common risk free for the European Monetary Union countries from 2004 to 2009 using variables motivated by a theoretical portfolio selection model. First, we analyze the determinants of EMU sovereign yield spreads and find significant effects of the credit quality, macro, correlation, and liquidity variables. However, their effects are different before and after the current financial crisis, being stronger in the latter period. Robustness tests with different data frequencies, benchmarks, liquidity variables, cross section regressions and balanced panels confirm the initial results. We propose four different estimates of the common risk free rate and show that, in most cases, this common rate could imply savings in borrowing costs for all the countries involved.
|Date of creation:||Sep 2009|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Marta Gomez Puig, 2006.
"The Impact of Monetary Union on EU-15 Sovereign Debt Yield Spreads,"
Working Papers in Economics
147, Universitat de Barcelona. Espai de Recerca en Economia.
- Marta Gómez-Puig, 2005. "The Impact Of Monetary Union On Eu-15 Sovereign Debt Yield Spreads," Working Papers 05-11, Asociación Española de Economía y Finanzas Internacionales.
- Marta Gómez-Puig, . "The Impact of Monetary Union on EU-15 Sovereign Debt Yield Spreads," Working Papers on International Economics and Finance 05-11, FEDEA.
- Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
- Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
- 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.
- Peter G. Dunne & Michael J. Moore & Richard Portes, 2002.
"Defining Benchmark Status: An Application using Euro-Area Bonds,"
NBER Working Papers
9087, National Bureau of Economic Research, Inc.
- Dunne, Peter & Moore, Michael J & Portes, Richard, 2002. "Defining Benchmark Status: An Application using Euro-Area Bonds," CEPR Discussion Papers 3490, C.E.P.R. Discussion Papers.
- Mitchell A. Petersen, 2005.
"Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches,"
NBER Working Papers
11280, National Bureau of Economic Research, Inc.
- Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
- Jean Pisani-Ferry & Adam Posen, . "The euro at ten: the next global currency?," Books, Bruegel, number 303.
- 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.
- 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.
- 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.
- Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858, December.
- Wolff, Guntram B. & Schulz, Alexander, 2008.
"Sovereign bond market integration: the euro, trading platforms and globalization,"
Discussion Paper Series 1: Economic Studies
2008,12, Deutsche Bundesbank, Research Centre.
- Guntram B. Wolff & Alexander Schulz, 2008. "Sovereign bond market integration: the euro, trading platforms and globalisation," European Economy - Economic Papers 2008 - 2015 332, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements.
- Laura E. Kodres & Kristian Hartelius & Kenichiro Kashiwase, 2008. "Emerging Market Spread Compression; Is it Real or is it Liquidity?," IMF Working Papers 08/10, International Monetary Fund.
- Sergei A. Davydenko & Ilya A. Strebulaev, 2007. "Strategic Actions and Credit Spreads: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 62(6), pages 2633-2671, December.
- Khaled Amira, 2004. "Determinants of Sovereign Eurobonds Yield Spread," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5-6), pages 795-821.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15353. 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: ()
If references are entirely missing, you can add them using this form.