High Yields: The Spread on German Interest Rates
Carlo Favero (),
Francesco Giavazzi () and
No 5408, NBER Working Papers from National Bureau of Economic Research, Inc
This paper is a first attempt at evaluating the determinants of the total interest rate differentials on government bonds between high yielders, namely Italy, Spain, Sweden and Germany. In particular we address the question of the relative importance of local and global factors in the determination of such spreads. We identify and measure two components of total yield differentials: one due to expectations of exchange rate depreciation -- which we call the exchange rate factor -- another which reflects the market assessment of default risk. We propose and discuss a measure of the exchange rate factors and of the default risk premium based on interest rate swaps. Overall our investigation provides strong evidence in favor of the existence of a common trend for the Italian and Spanish spreads on Bunds, which is not shared by the Swedish spread. Such a trend is driven by international factors and is independent from country- specific shocks. Country-specific shocks are only relevant in explaining short term cycles around the common stochastic trend.
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Published as Economic Journal, Vol. 107, no. 663 (July 1997).
Downloads: (external link)
Journal Article: High Yields: The Spread on German Interest Rates (1997)
Working Paper: High Yields: The Spread on German Interest Rates (1996)
Working Paper: High Yielders: the Spread on German Interest Rates
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:5408
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().