Regime-Dependent Sovereign Risk Pricing During the Euro Crisis*

Delatte, Anne-Laure; Fouquau, Julien; Portes, Richard

doi:10.1093/rof/rfw050

Cited by 56 publications

(56 citation statements)

References 24 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In addition to these regimes, however, we find evidence of a third regime introduced in the second part of 2012. Apart from the study by Delatte et al (2017), the previous literature on regime-dependent sovereign bond pricing has not analysed the implications of the OMT announcement and more generally the role of ECB policy interventions. That study concludes that the change in the regime following the announcement represents a restoration of the regime that was in place prior to the crisis.…”

Section: Discussionmentioning

confidence: 99%

“…Unconventional monetary policy is captured by the growth (logarithmic difference) in the amount of securities held by the ECB for monetary policy purposes (Δshmp), as reported in the ECB's weekly financial statements. The ECB's securities holdings, data for which is available since July 2009 only, have also been used by Gibson et al (2016) and Delatte et al (2017), among others, to capture the effect of nonstandard monetary measures adopted by the ECB during the crisis. To construct a monthly series for securities holdings, we use the relevant figure quoted in each month's last weekly consolidated financial statement of the Eurosystem, published by the ECB (assets side, item 7.1).…”

Section: Methodsmentioning

confidence: 99%

“…Finally, motivated by the evidence in Delatte et al (2017) about the importance of bank credit risk as a source of time variation in the relationship between spreads and fundamentals, we add the lagged European banking sector senior subordination CDS index to the set of explanatory variables in equation (2). The results are presented in column 3 of Table 2.…”

mentioning

confidence: 99%

See 2 more Smart Citations

“Whatever it takes” to resolve the European sovereign debt crisis? Bond pricing regime switches and monetary policy effects

Afonso

Arghyrou

Gadea

et al. 2018

Journal of International Money and Finance

View full text Add to dashboard Cite

This paper investigates the role of unconventional monetary policy as a source of timevariation in the relationship between sovereign bond yield spreads and their fundamental determinants. We use a two-step empirical approach. First, we apply a time-varying parameter panel modelling framework to determine shifts in the pricing regime characterising sovereign bond markets in the euro area over the period January 1999 to July 2016. Second, we estimate the impact of ECB policy interventions on the time-varying risk factor sensitivities of spreads. Our results provide evidence of a new bond-pricing regime following the announcement of the Outright Monetary Transactions (OMT) programme in August 2012. This regime is characterised by a weakened link between spreads and fundamentals, but with higher spreads relative to the pre-crisis period and residual redenomination risk. We also find that unconventional monetary policy measures affect the pricing of sovereign risk not only directly, but also indirectly through changes in banking risk. Overall, the actions of the ECB have operated as catalysts for reversing the dynamics of the European sovereign debt crisis. JEL: E43, E44, F30, G01, G12Keywords: euro area, spreads, crisis, time-varying relationship, unconventional monetary policy Acknowledgements: We thankfully acknowledge financial support by FCT (Fundação para a Ciência e a Tecnologia, Portugal). FCT had no involvement in the study design, collection, analysis and interpretation of data, writing and submission of this research paper. M. Dolores Gadea acknowledges financial support from the Ministerio de Ciencia y Tecnologia, Spain, under grant ECO2011-30260-C03-02. We thank participants at the 6th UECE Conference on Economic and Financial Adjustments, 2017 (Lisbon) for very useful comments, and we are grateful to Mina Kazemi for valuable research assistance.

show abstract

Section: Discussionmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

See 1 more Smart Citation

“Whatever it takes” to resolve the European sovereign debt crisis? Bond pricing regime switches and monetary policy effects

Afonso

Arghyrou

Gadea

et al. 2018

Journal of International Money and Finance

View full text Add to dashboard Cite

show abstract

“…Therefore, debt sustainability concerns in peripheral countries after the Greek sovereign default may partially explain the importance of default risk. More recently, Delatte, Fouquau, and Portes (2017) also find evidences of bank credit risk as a driver of regime switches in long-term sovereign spreads.…”

Section: Ols Regressionsmentioning

confidence: 93%

Dissecting interbank risk using basis swap spreads

Lafuente

Petit

Ruíz³

et al. 2019

World Economy

View full text Add to dashboard Cite

This paper analyses interbank risk using the information content of basis swap (BS) spreads, floating‐to‐floating interest rate swaps whose payments are associated with euro deposit rates for alternative tenors. To identify the impact of shocks affecting interbank risk, we propose an empirical model that decomposes BS quotes into their expected and unexpected components. These unobservable constituents of BS spreads are estimated by solving a signal extraction problem using a particle filter. We find that expected components covariate with aggregate liquidity and risk aversion while systemic risk arises as the main driver behind unexpected fluctuations. Our empirical findings suggest that macroprudential analysis emerges as a key device to ease asset pricing in a new multi‐curve scenario.

show abstract

“…This phenomenon was documented by a diverse set of studies including Aizenman, Hutchison and Jinjarak (2013), DeGrauwe and Ji (2013), andVernazza and Nielsen (2015) Delatte, Fouquau and Portes (2016). document an increased sensitivity to fundamentals from 2010 to 2012, and a partial reversal following the introduction of the OMT by the ECB.…”

mentioning

confidence: 94%

The Fiscal-Monetary Policy Mix in the Euro Area: Challenges at the Zero Lower Bound

Orphanides

2017

SSRN Journal

View full text Add to dashboard Cite

2017 Fellowship Initiative Papers are written by external experts commissioned to write research papers, retaining complete academic independence, contributing to the discussion on economic policy and stimulating debate. The views expressed in this document are therefore solely those of the author(s) and do not necessarily represent the official views of the European Commission. Authorised for publication by Mary Veronica Tovšak Pleterski, Director for Investment, Growth and Structural Reforms. DG ECFIN's Fellowship Initiative 2016-2017 "Challenges to integrated markets" culminates and comes to a successful conclusion with the publication of the fellows' contributed papers in our Discussion paper series. Against the background of increasing strains to economic integration at both the global and the European level, the Initiative has brought together a group of outstanding scholars to reexamine integration challenges at the current juncture and to explore the policy options to address these challenges in a discursive interaction process between the group of fellows and Commission services. The research themes of the fellows have spanned a broad area including topics in the political economy of globalisation and integration, issues of macroeconomic policy making at the zero lower interest rate bound, and market integration challenges not least in view of deepening EMU. LEGAL NOTICE Neither the European Commission nor any person acting on its behalf may be held responsible for the use which may be made of the information contained in this publication, or for any errors which, despite careful preparation and checking, may appear. This paper exists in English only and can be downloaded from https://ec.europa.eu/info/publications/economic-and-financial-affairs-publications_en. Europe Direct is a service to help you find answers to your questions about the European Union.

show abstract

Regime-Dependent Sovereign Risk Pricing During the Euro Crisis*

Cited by 56 publications

References 24 publications

“Whatever it takes” to resolve the European sovereign debt crisis? Bond pricing regime switches and monetary policy effects

“Whatever it takes” to resolve the European sovereign debt crisis? Bond pricing regime switches and monetary policy effects

Dissecting interbank risk using basis swap spreads

The Fiscal-Monetary Policy Mix in the Euro Area: Challenges at the Zero Lower Bound

Contact Info

Product

Resources

About