Fiscal austerity, growth prospects, and sovereign CDS spreads: The Eurozone and beyond

Chunming Yuan and Tanu J. Pongsiri

International Economics, 2015, issue 141, 50-79

Abstract: This paper applies both conventional panel data models and a dynamic simultaneous equations model to analyze the impact of fiscal austerity and growth prospects along with other macro fundamentals on the pricing of sovereign credit default swaps (CDS) for a panel of 36 countries including the Eurozone. We find that austerity practice generally leads to an expectation of improved fiscal situations, which tends to help the CDS market grow more confidence in indebted sovereigns? ability to service their debt. The public debt to GDP ratio and projected future output growth also play an important role in determining the prices of sovereign debt insurance. Our analyses further show that the behavior of CDS spreads is considerably affected by common time trends over the sample period.

Keywords: Credit default swap; Fiscal austerity; Growth prospects; Dynamic simultaneous equations model (search for similar items in EconPapers)
JEL-codes: F34 G10 G15 H60 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2110701715000025 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2015-q1-141-4

Access Statistics for this article

More articles in International Economics from CEPII research center Contact information at EDIRC.
Bibliographic data for series maintained by ().