Recent Estimates of Sovereign Risk Premia for Euro-Area Countries

A DSGE Model for a SOE with Systematic Interest and Foreign Exchange Policies in Which Policymakers Exploit the Risk Premium for Stabilization Purposes

“…However, although a positive correlation between foreign debt and the risk premium is typically found in empirical research (Bellas et al 2010, Di Cesare et al 2012, a negative correlation between CB reserves and the risk premium is also measured. 25 Fouejieu and Roger (2013), for example, place Gross external debt and Foreign exchange reserves (both as a ratio to GDP) at the top of their potential determinants of country risk and use system GMM estimation with annual data from 40 emerging and high income countries in the 1989 to 2010 period.…”

Fragmentation and Heterogeneity in the Euro Area Corporate Bond Market: Back to Normal?

“…To a more muted extent, the process involves also France; only Finland and the Netherlands are spared from it. In addition, over the most acute phase of the sovereign debt crisis, two phenomena characterise the euro-area (corporate and sovereign) bond market: the "flight to safety" effect, which tends to reduce the premium on German bonds, and the fear of a euro break-up (the so called redenomination risk), which starts to be priced in peripheral euro-area securities, further increasing yield spreads to Germany (Di Cesare et al 2012, Klose and Weigert 2014, Dewachter et al 2015.…”

“…Even though the methods employed are often different, as well as the reference measure of sovereign creditworthiness (mainly CDS spreads or sovereign yield spreads to German Bunds), the gathered evidence suggests that the fragmentation in the sovereign bond market was due to an increased reaction to country-specific factors (Georgoutsos and Migiakis 2013, Dewachter et al 2014, Battistini et al 2014 or even to contagion effects (Giordano et al 2013, De Santis 2014. In addition, several contributions emphasize that market reactions exhibited overshooting characteristics and were in many instances not linked to the countries' fiscal and macroeconomic fundamentals (Di Cesare et al 2012, De Grauwe and Ji 2012, Aizenman et al 2013, Gibson et al 2015). …”

Expectations and systemic risk in EMU government bond spreads

“…Using high-frequency data, several papers have also shown the role of macroeconomic news and rating announcements (see, e.g., Alfonso, Furceri and Gomez, 2011;Arezki, Candelon and Sy, 2011;Arru et al, 2012;De Santis, 2012;Gärtner and Griesbach, 2012). Others argued that the unexplained part of spreads dynamics could re ‡ect a new, systemic risk emerged since 2010: the risk of a euro break-up, that is, the risk that one or more countries might exit from the EMU and introduce new national currencies (see, e.g., Eichler, 2011;Hui and Chung, 2011;Di Cesare et al, 2012;Woo and Vamvakidis, 2012;Klose and Weigert, 2012;Favero, 2013).…”