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Heterogeneity of the determinants of euro-area sovereign bond spreads; what does it tell us about financial stability?

Author

Listed:
  • Dimitris A. Georgoutsos

    (Athens University of Economics & Business)

  • Petros Migiakis

    (Bank of Greece)

Abstract

In this paper we assess the movements of euro area sovereign bond yield spreads vis-à-vis the German Bund as processes specified across different levels of volatility and subject to movements in asset prices and economic conditions. The determinants we use are grouped into domestic and euro-area aggregates, thus allowing us to derive results on their relative explanatory power for movements in spreads and compare them across time and the spectrum of countries. We find that volatility influences the deterministic processes of the euro area sovereign spreads and that identical determinants have effects on spreads that vary considerably across countries. Furthermore, we find that economic sentiment indices are the most important determinants and their significance remains, to a large extent, even when controlling for the debt-to-GDP ratio.

Suggested Citation

  • Dimitris A. Georgoutsos & Petros Migiakis, 2012. "Heterogeneity of the determinants of euro-area sovereign bond spreads; what does it tell us about financial stability?," Working Papers 143, Bank of Greece.
    • Handle: RePEc:bog:wpaper:143
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    More about this item

    Keywords

    bond spreads; euro area; investment confidence; financial stability.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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