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Systemic sovereign credit risk: Lessons from the U.S. and Europe

Andrew Ang () and Francis A. Longstaff

Journal of Monetary Economics, 2013, vol. 60, issue 5, 493-510

Abstract: We study the nature of systemic sovereign credit risk using CDS spreads for the U.S. Treasury, individual U.S. states, and major Eurozone countries. Using a multifactor affine framework that allows for both systemic and sovereign-specific credit shocks, we find that there is much less systemic risk among U.S. sovereigns than among Eurozone sovereigns. We find that both U.S. and Eurozone systemic sovereign risk are strongly related to financial market variables. These results provide strong support for the view that systemic sovereign risk has its roots in financial markets rather than in macroeconomic fundamentals.

Date: 2013
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Working Paper: Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:5:p:493-510

DOI: 10.1016/j.jmoneco.2013.04.009

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Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

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