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An update on EMU sovereign yield spread drivers in time of crisis: A panel data analysis

Marta Gómez-Puig (), Simon Sosvilla-Rivero () and María del Carmen Ramos-Herrera ()
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María del Carmen Ramos-Herrera: Department of Quantitative Economics, Universidad Complutense de Madrid

No 2014-04, Working Papers from Universitat de Barcelona, UB Riskcenter

Abstract: We empirically investigate the determinants of EMU sovereign bond yield spreads with respect to the German bund. Using panel data techniques, we examine the role of a wide set of potential drivers. To our knowledge, this paper presents one of the most exhaustive compilations of the variables used in the literature to study the behaviour of sovereign yield spreads and, in particular, to gauge the effect on these spreads of changes in market sentiment and risk aversion. We use a sample of both central and peripheral countries from January 1999 to December 2012 and assess whether there were significant changes after the outbreak of the euro area debt crisis. Our results suggest that the rise in sovereign risk in central countries can only be partially explained by the evolution of local macroeconomic variables in those countries. Besides, without exception, the marginal effects of sovereign spread drivers (specifically, the variables that measure global market sentiment) increased during the crisis compared to the pre-crisis period, especially in peripheral countries.

Keywords: Sovereign bond spreads; panel data; eurozone (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mon
Date: 2014-03
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http://www.ub.edu/riskcenter/rfa/WP/UBriskcenterWP201404.pdf First version, 2014 (application/pdf)
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Related works:
Journal Article: An update on EMU sovereign yield spread drivers in times of crisis: A panel data analysis (2014) Downloads
Working Paper: An update on EMU sovereign yield spread drivers in times of crisis: A panel data analysis (2014) Downloads
Working Paper: An Update on EMU Sovereign Yield Spread Drivers in Times of Crisis: A Panel Data Analysis (2014) Downloads
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