Determinants of government bond spreads in the Euro Area: in good times as in bad

Arbeitspapier

Despite the single currency, yields on government bonds in the Euro Area deviate from German bond yields. These bond spreads are usually attributed to differing default and liquidity risks. Recent research points out that time-varying global factors, approximated by risk measures or short term interest rates, play an important role for the evaluation of theses risks. In this paper, instead of proxy variables latent processes are assumed to model the aforementioned time variation. We find, that default risks measured via expected debt-to-GDP ratio explain a good stake of the variation of bond spreads in the Euro area at least between 2003 and the take-off of the financial crisis. During the financial crisis default risks or rather their evaluation increased but lost relative importance compared to liquidity risks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1548

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Asset Pricing; Trading Volume; Bond Interest Rates ; Interest Rates: Determination, Term Structure, and Effects ; Fiscal Policy
• Subject: Euro Area ; bond spreads ; time-varying coefficients ; liquidity risk ; default risk ; Öffentliche Anleihe ; Zinsstruktur ; Kreditrisiko ; Risikoprämie ; EU-Staaten ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Aßmann, Christian ; Boysen-Hogrefe, Jens
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/28375
• Last update: 10.03.2025, 11:44 AM CET