An Update on EMU Sovereign Yield Spread Drivers in Times of Crisis: A Panel Data Analysis

38 Pages Posted: 8 Mar 2014

See all articles by Marta Gómez-Puig

Marta Gómez-Puig

Economic Theory Department. University of Barcelona

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

María del Carmen Ramos-Herrera

Universidad Complutense de Madrid (UCM)

Date Written: March 7, 2014

Abstract

We empirically investigate the determinants of EMU sovereign bond yield spreads with respect to the German bund. Using panel data techniques, we examine the role of a wide set of potential drivers. To our knowledge, this paper presents one of the most exhaustive compilations of the variables used in the literature to study the behaviour of sovereign yield spreads and, in particular, to gauge the effect on these spreads of changes in market sentiment and risk aversion. We use a sample of both central and peripheral countries from January 1999 to December 2012 and assess whether there were significant changes after the outbreak of the euro area debt crisis. Our results suggest that the rise in sovereign risk in central countries can only be partially explained by the evolution of local macroeconomic variables in those countries. Besides, without exception, the marginal effects of sovereign spread drivers (specifically, the variables that measure global market sentiment) increased during the crisis compared to the pre-crisis period, especially in peripheral countries.

Keywords: Sovereign bond spreads, Panel data, Eurozone

JEL Classification: C33, C52, E44, F36, G15

Suggested Citation

Gómez-Puig, Marta and Sosvilla-Rivero, Simon and Ramos-Herrera, María del Carmen, An Update on EMU Sovereign Yield Spread Drivers in Times of Crisis: A Panel Data Analysis (March 7, 2014). Available at SSRN: https://ssrn.com/abstract=2405922 or http://dx.doi.org/10.2139/ssrn.2405922

Marta Gómez-Puig

Economic Theory Department. University of Barcelona ( email )

Diagonal 690
Barcelona, 08034
Spain
34-93-4020113 (Phone)
34-93-4039082 (Fax)

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

María del Carmen Ramos-Herrera

Universidad Complutense de Madrid (UCM) ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain

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