Recent Estimates of Sovereign Risk Premia for Euro-Area Countries

41 Pages Posted: 10 Oct 2012

Date Written: September 12, 2012

Abstract

This paper examines the recent behavior of sovereign interest rates in the euro area, focusing on the 10 year yield spreads relative to Germany for Italy and other euro area countries. Both previous analyses and the new evidence presented in the paper suggest that, in recent months, for several countries the spread has increased to levels that are well above those that could be justified on the basis of fiscal and macroeconomic fundamentals. Among the possible reasons for this gap, the analysis focuses on the perceived risk of a break up of the euro area.

Keywords: interest rates, government yield spreads, sovereign risk premia, government debt, financial crisis, sovereign debt crisis, financial contagion, euro break up, convertibility risk

JEL Classification: G12, E43, E62, H63

Suggested Citation

Di Cesare, Antonio and Grande, Giuseppe and Manna, Michele and Taboga, Marco, Recent Estimates of Sovereign Risk Premia for Euro-Area Countries (September 12, 2012). Bank of Italy Occasional Paper No. 128, Available at SSRN: https://ssrn.com/abstract=2159218 or http://dx.doi.org/10.2139/ssrn.2159218

Antonio Di Cesare

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Giuseppe Grande (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
+390647922643 (Phone)
+390647923723 (Fax)

Michele Manna

Bank of Italy ( email )

via Nazionale 91
00184 Roma
Italy

Marco Taboga

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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