 Determinants of sovereign yield spreads in the Eurozone: A Bayesian approachDominik Maltritz Journal of International Money and Finance, 2012, vol. 31, issue 3, 657-672 Abstract: We analyze the determinants of sovereign yields spreads of EMU member states applying Bayesian Model Averaging (BMA) to annual panel data from 1999 to 2009. BMA is well-suited in cases of small samples and high model uncertainty. This seems to be the case in modeling sovereign yield spreads in the Eurozone since the literature reports heterogeneous results with respect to significant explanatory variables. We are testing a number of variables reported to be significant in the literature and find that the most likely country specific drivers of yield spreads are fiscal variables such as budget balance and government debt, as well as external sector variables, such as terms of trade, trade balance and openness. Global financing conditions, indicated by the US interest rate, and market sentiments, indicated by corporate bond spreads, are likely to influence sovereign yield spreads. Keywords: E43; G12; H63; E62; Sovereign bond yield spreads; Default risk in EMU countries; Bayesian Model Averaging (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:3:p:657-672 DOI: 10.1016/j.jimonfin.2011.10.010 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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