Sovereign spreads in the Eurozone: Is market discipline working?

Arbeitspapier

This paper studies the behavior of sovereign spreads of countries in the European Monetary Union (EMU) and their apparent disconnection with country-specific fundamentals before the 2008- 2013 debt crisis. We test three characteristics of spreads: i) a change in the level of spreads, ii) a weak link between spreads and macroeconomic fundamentals, and iii) a reduction in the cross-country variance of spreads. We find that, in comparison to economies from other regions, spreads from EMU members are lower, the relationship of spreads with variables like fiscal balance, public debt, and GDP growth rate is weaker, and their cross-country variance is statistically lower than the cross-country variance of spreads from non-EMU countries between 1999 and 2005. The results are consistent with the existence of creditor moral hazard in the EMU's sovereign bond market before the crisis.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers ; No. 2015-20

Classification and Topics

• Classification: Wirtschaft ; International Monetary Arrangements and Institutions ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: European Monetary Union ; Sovereign Debt Risk ; Investor (Creditor) Moral Hazard

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Zuccardi, Igor Esteban
• Event: Veröffentlichung
• (who): Banco de México
• (where): Ciudad de México
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/129953
• Last update: 10.03.2025, 11:43 AM CET