Expectations and Systemic Risk in EMU Government Bond Spreads

Paolo Canofari, Giancarlo Marini and Giovanni Piersanti

No 2014/1, LEAP Working Papers from Luiss Institute for European Analysis and Policy

Abstract: This paper explores the determinants of 10-years sovereign bond spreads over the German Bund benchmark in the Euro Zone from 2000 to 2013, relying on cross-country quarterly data panel analysis. The paper focal point is the role of contagion and euro break-up risks in widening the sovereign bond yield differentials among EU member countries. Using a novel synthetic index capable of monitoring the sustainability of currency unions, the paper finds that market expectations of a euro’s break up and contagion from Greece were fundamentals drivers of sovereign risk premia in peripheral countries.

Keywords: Monetary unions; speculative attacks; self-fulfilling expectations; multiple equilibria; shadow exchange rate; financial crisis; contagion; spreads; sovereign default risk; euro break up risk (search for similar items in EconPapers)
JEL-codes: C32 C33 E42 E44 E62 F31 F33 F41 G01 G12 H63 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2014-06-01
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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