Recent Estimates of Sovereign Risk Premia for Euro-Area Countries
41 Pages Posted: 10 Oct 2012
Date Written: September 12, 2012
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: Suggested Citation