Regime-Dependent Sovereign Risk Pricing During the Euro Crisis

50 Pages Posted: 5 Nov 2020

See all articles by Anne-Laure Delatte

Anne-Laure Delatte

CNRS

Julien Fouquau

ESCP Business School

Richard Portes

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: May, 2016

Abstract

Previous work has documented a greater sensitivity of long-term government bond yields to fundamentals in Euro area stress countries during the euro crisis, but we know little about the driver(s) of regimeswitches. Our estimates based on a panel smooth threshold regression model quantify and explain them: 1) investors have penalized a deterioration of fundamentals more strongly from 2010 to 2012; 2) a key indicator of regime switch is the premium of the financial credit default swap index: the higher the bank credit risk, the higher the extra premium on fundamentals; 3) after ECB President Draghi’s speech in July 2012, it took one year to restore the non-crisis regime and suppress the extra premium.

Keywords: European sovereign crisis, Panel Smooth Threshold Regression Models, CDS indices

JEL Classification: E44, F34, G12, H63, C23

Suggested Citation

Delatte, Anne-Laure and Fouquau, Julien and Portes, Richard, Regime-Dependent Sovereign Risk Pricing During the Euro Crisis (May, 2016). ESRB: Working Paper Series No. 2016/09, Available at SSRN: https://ssrn.com/abstract=3723355 or http://dx.doi.org/10.2139/ssrn.3723355

Anne-Laure Delatte

CNRS ( email )

3, rue Michel-Ange
Paris, 75794
France

Julien Fouquau (Contact Author)

ESCP Business School ( email )

79 avenue de la République
75011
France

Richard Portes

London Business School - Department of Economics ( email )

Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 8424 (Phone)
+44 20 7000 8401 (Fax)

HOME PAGE: http://faculty.london.edu/rportes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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