Wealth-to-income ratio, government bond yields and financial stress in the Euro Area

Ricardo Sousa

Applied Economics Letters, 2012, vol. 19, issue 11, 1085-1088

Abstract: I show that when the ratio of asset wealth to human wealth, wy , falls, investors become more exposed to idiosyncratic shocks and demand a higher government bond risk premium. Using data for the Euro Area as a whole and conditioning the forecasting ability of wy on the financial stress conditions, one is able to track better future time-variation in risk premium.

Date: 2012
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DOI: 10.1080/13504851.2011.613751

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