Arbeitspapier

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

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.

Language
Englisch

Bibliographic citation
Series: Kiel Working Paper ; No. 1548

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

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

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Aßmann, Christian
  • Boysen-Hogrefe, Jens
  • Kiel Institute for the World Economy (IfW)

Time of origin

  • 2009

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