IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v55y2023i34p3971-3979.html
   My bibliography  Save this article

The decoupling between public debt fundamentals and bond spreads after the European sovereign debt crisis

Author

Listed:
  • Luis Guirola
  • Javier J. Pérez

Abstract

We contribute to the literature that documents empirically that the relationship between public debt fundamentals and sovereign bond spreads in Spain, France, and Italy (versus Germany) weakened after the 2010–2012 episode of sovereign debt markets’ significant distress. To construct our measure of public debt fundamentals, we build on the literature that combines the Value at Risk approach with the estimation of the correlation pattern of public debt dynamics’ macroeconomic determinants via Vector Auto Regressions (VARs) to estimate the probability distribution of alternative debt trajectories. Since we incorporate in the VAR new information in a sequential manner, we are able to retrieve time-varying probabilities that characterize the expected behaviour of debt at a given point in time in the future. We then empirically confront such probabilistic indicators with market-derived sovereign bond spreads.

Suggested Citation

  • Luis Guirola & Javier J. Pérez, 2023. "The decoupling between public debt fundamentals and bond spreads after the European sovereign debt crisis," Applied Economics, Taylor & Francis Journals, vol. 55(34), pages 3971-3979, July.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:34:p:3971-3979
    DOI: 10.1080/00036846.2022.2120959
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2022.2120959
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2022.2120959?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:55:y:2023:i:34:p:3971-3979. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.