Regime-Dependent Sovereign Risk Pricing During the Euro Crisis
Anne-Laure Delatte,
Julien Fouquau and
Richard Portes
Review of Finance, 2017, vol. 21, issue 1, 363-385
Abstract:
Previous work has documented a greater sensitivity of long-term government bond yields to fundamentals in euro area peripheral countries during the euro crisis, but we know little about the driver(s) of regime switches. Our estimates based on a panel smooth threshold regression model quantify and explain them: (1) investors have penalized a deterioration of fundamentals more strongly from 2010 to 2012; (2) the higher the bank credit risk, measured with the premium on credit derivatives, the higher the extra premium on fundamentals; (3) after ECB President Draghi’s speech in July 2012, it took 1 year to restore the noncrisis regime and suppress the extra premium.
JEL-codes: C23 E44 F34 G12 H63 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (51)
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