Regime-dependent sovereign risk pricing during the Euro Crisis

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Title:	Regime-dependent sovereign risk pricing during the Euro Crisis
Author:	Delatte, Anne-Laure; Fouquau, Julien; Portes, Richard
Abstract:	Previous work has documented a greater sensitivity of long-term government bond yields to fundamentals in Euro area peripheral countries during the euro crisis, but we know little about the driver(s) of regime switches. Our estimates based on a panel smooth threshold regression model quantify and explain them: 1) investors have penalized a deterioration of fundamentals more strongly from 2010 to 2012; 2) the higher the bank credit risk, measured with the premium on credit derivatives, the higher the extra premium on fundamentals; 3) after ECB President Draghi’s speech in July 2012, it took one year to restore the non crisis regime and suppress the extra premium.
Abstract:	The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
Subject(s):	-European sovereign crisis -Panel Smooth Transition Regression Models -CDS indices
Rights:	This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed. http://creativecommons.org/licenses/by/4.0/
Document type:	Working Paper
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