Euro area sovereign yield spreads as determinants of private sector borrowing costs

Arbeitspapier

We regress long-term private sector interest rates on a money market rate, a term premium and credit risk. As a contribution to the current debate about European safe assets, our interest is in quantifying domestic spillover effects from euro area sovereign bond spreads. Panel estimates show significant, albeit rather small long-run effects. Our findings indicate large cross-country differences but no evidence that the effect has become stronger over time. Using linear country-specific estimates, we find the effect to be significant in only some countries, the size of the maximum effect exceeding the average one more than three-fold. For one country, we also find a highly significant asymmetrical effect with positive spread changes having greater impact on private-sector borrowing costs than negative ones. Overall, we conclude that contagion costs in the euro area are substantial and will remain so until an effective form of European safe assets is created.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMK Working Paper ; No. 193

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; General Financial Markets: General (includes Measurement and Data) ; Financial Aspects of Economic Integration
• Subject: autoregressive distributed lag ; composite cost of borrowing ; sovereign spread

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Theobald, Thomas ; Tober, Silke
• Event: Veröffentlichung
• (who): Institut für Makroökonomie und Konjunkturforschung (IMK), Hans-Böckler-Stiftung
• (where): Düsseldorf
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/192991
• URN: urn:nbn:de:101:1-2018102513325123101204
• Last update: 10.03.2025, 11:41 AM CET