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Regime-dependent sovereign risk pricing during the euro crisis

Anne-Laure Delatte (), Julien Fouquau and Richard Portes ()

No 9, ESRB Working Paper Series from European Systemic Risk Board

Abstract: Previous work has documented a greater sensitivity of long-term government bond yields to fundamentals in Euro area stress countries during the euro crisis, but we know little about the driver(s) of regimeswitches. 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) a key indicator of regime switch is the premium of the financial credit default swap index: the higher the bank credit risk, the higher the extra premium on fundamentals; 3) after ECB President Draghi’s speech in July 2012, it took one year to restore the non-crisis regime and suppress the extra premium. JEL Classification: E44, F34, G12, H63, C23

Keywords: European sovereign crisis; Panel Smooth Threshold Regression Models; CDS indices (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-opm
Date: 2016-05
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Related works:
Journal Article: Regime-Dependent Sovereign Risk Pricing During the Euro Crisis (2017) Downloads
Working Paper: Regime-Dependent Sovereign Risk Pricing During the Euro Crisis (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:201609

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