What Explains the Surge in Euro Area Sovereign Spreads during the Financial Crisis of 2007–09?

By M. Attinasi, Cristina Checherita, Christiane Nickel. Social Science Research Network, 2009

437 citations recorded by the source corpus.

This paper explains the determinants of widening sovereign bond yield spreads vis-à-vis Germany in selected euro area countries during the period end-July 2007 to end-March 2009, when the financial turmoil developed into a full-blown financial and economic crisis. Emphasis is given to the role of fiscal fundamentals and government announcements of substantial bank rescue packages. The paper finds that higher expected budget deficits and/or higher government debt ratios relative to Germany contributed to higher government bond yield spreads in the euro area during the analyzed period. More importantly, the announcements of bank rescue packages have led to a re-assessment, from the part of investors, of sovereign credit risk, first and foremost through a transfer of risk from the private financial sector to the government.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/de50616e9d7fefd06e728ae767780156e2ea01f2

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Citations in the corpus

Long-Run and Short-Run Determinants of Sovereign Bond Yields in Advanced Economies (2012, neutral): “…response of sovereign bond spreads to changes in macroeconomic and fiscal determinants has substantially weakened in advanced euro area countries following the introduction of the euro in 1999 (see, e.g., Attinasi et al, 2009; Schuknecht et al., 2010; Bernoth et al., 2012; De Grauwe and Ji, 2012).”
National culture and bank risk-taking (2017, neutral): “Because banks hold sovereign bonds, there is also feedback in the other direction (Attinasi et al., 2010).”
Modelling and forecasting government bond spreads in the euro area: A GVAR model (2013, background): “The standard specifications adopted for sovereign spreads in EMU (Favero et al., 2010; Beber et al., 2010; Schuknecht et al., 2009; Attinasi et al., 2009; Sgherri and Zoli, 2009; Laubach(2009,2011) models them as persistent processes reverting toward a time-varying mean determined by…”
Mispricing of Sovereign Risk and Macroeconomic Stability in the Eurozone (2012, background): “In the existing empirical literature there has been a tendency to add a lot of other variables on the right-hand side of the two equations (see, for example, Attinasi et al., 2009; Arghyrou and Kontonikas, 2010; Beirne and Fratzscher, 2012).”
Measuring Bilateral Spillover and Testing Contagion on Sovereign Bond Markets in Europe (2014, background): “…measures the effect of a global risk factor, whose weight depends on the distance of fiscal fundamentals vis à vis a benchmark country. banking sector and the economic fallout of the crisis cast in doubt the sustainability of public debt positions in several EU countries (Attinasi et al., 2010).”
The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for the Euro Area (2010, neutral): “11 See Ardagna et al. (2007) and Laubach (2009) for the long-term sovereign yields and Codogno et al. (2003); Schuknecht et al. (2009); Barrios et al. (2009), and Attinasi et al (2009), among others, for long-term sovereign bond yield spreads.”
Banking and Sovereign Risk in the Euro Area (2010, neutral): “Attinasi et al. (2009) provide an aggregated synopsis.”
The Determinants of Sovereign Bond Yield Spreads in the EMU (2012, methodology): “All reported models have also been estimated using the Feasible Generalised Least Squares (FGLS) method, with cross-section weights which accounting for cross-sectional heteroskedasticity (see also Attinasi et al., 2009).”
Sovereign bond yield spreads: A time-varying coefficient approach (2012, background): “9Following Codogno et al. (2003), Haugh et al. (2009), Attinasi et al. (2009) and Barrios et al. (2009), we test whether the interaction terms between the fiscal variables and the general risk aversion indicator play a role in explaining yield differentials.”
Systemic Risk, Sovereign Yields and Bank Exposures in the Euro Crisis (2014, background): “Attinasi et al. (2009) and De Santis (2012) proxy risk aversion by the spread between the US AAA corporate bonds and the US 10-year sovereign bonds, Caceres et al. (2010) estimate it as the market price of risk of a stress event, and Sgherri and Zoli (2009) measure it as a latent common factor in…”
Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries (2019, background): “The literature argues that there are three types of potential determinants that may affect spreads (Attinasi et al., 2009; Afonso et al., 2012): credit risk (i.e., a country's creditworthiness as reflected by its fiscal and macroeconomic position), liquidity risk (i.e., the size and depth of a…”
Self-Fulfilling Crises in the Eurozone: An Empirical Test (2012, background): “…to be affected because such defaults lead to a negative effect on economic activity, inducing a decline in government revenues and an increase in 6 Attinasi et al. (2009), Arghyrou & Kontonikas (2010), Gerlach et al. (2010), Schuknecht et al. (2010), Caceres et al. (2010), Caporale & Girardi…”