Review of Finance Vol. 21 No. 1 2017
Regime-Dependent Sovereign Risk Pricing During the Euro Crisis
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.
- DOI
- 10.1093/rof/rfw050
- Volume
- 21
- Issue
- 1
- Pages
- 363-385
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref