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On the time-varying relationship between EMU sovereign spreads and their determinants

Afonso, António, Arghyrou, Michael Georgiou, Bagdatoglou, George and Kontonikas, Alexandros 2015. On the time-varying relationship between EMU sovereign spreads and their determinants. Economic Modelling 44 , pp. 363-371. 10.1016/j.econmod.2014.07.025

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Abstract

We use a dynamic multipath general-to-specific algorithm to capture structural instability in the link between euro area sovereign bond yield spreads against Germany and their underlying determinants over the period January 1999–August 2011. We offer new evidence suggesting a significant heterogeneity across countries, both in terms of the risk factors determining spreads over time as well as in terms of the magnitude of their impact on spreads. Our findings suggest that the relationship between euro area sovereign risk and the underlying fundamentals is strongly time-varying, turning from inactive to active since the onset of the global financial crisis and further intensifying during the sovereign debt crisis. As a general rule, the set of financial and macro spreads' determinants in the euro area is rather unstable but generally becomes richer and stronger in significance as the crisis evolves.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Elsevier
ISSN: 0264-9993
Date of First Compliant Deposit: 30 March 2016
Last Modified: 28 Jun 2019 17:40
URI: http://orca.cf.ac.uk/id/eprint/64938

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