On the time-varying relationship between EMU sovereign spreads and their determinants

Antonio Afonso, Michael Arghyrou, George Bagdatoglou and Alexandros Kontonikas ()

Working Papers from Business School - Economics, University of Glasgow

Abstract: We use a dynamic multipath general-to-specific algorithm to capture structural instability in the link between euro area sovereign bond yield spreads against Germany and their underlying determinants over the period January 1999 – August 2011. We offer new evidence suggesting a significant heterogeneity across countries, both in terms of the risk factors determining spreads over time as well as in terms of the magnitude of their impact on spreads. Our findings suggest that the relationship between euro area sovereign risk and the underlying fundamentals is strongly time-varying, turning from inactive to active since the onset of the global financial crisis and further intensifying during the sovereign debt crisis. As a general rule, the set of financial and macro spreads’ determinants in the euro area is rather unstable but generally becomes richer and stronger in significance as the crisis evolves.

Keywords: euro area; crisis; spreads; time-series analysis; time-varying relationship. (search for similar items in EconPapers)
JEL-codes: C22 C52 E43 E62 G12 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: On the time-varying relationship between EMU sovereign spreads and their determinants (2015)
Working Paper: On the time-varying relationship between EMU sovereign spreads and their determinants (2013)
Working Paper: On the time-varying relationship between EMU sovereign spreads and their determinants (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2013_05

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