EMU, the Changing Role of Public Debt and the Revival of Sovereign Credit Risk Perception

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Dateien:
Aufrufstatistik

URI: http://nbn-resolving.de/urn:nbn:de:bsz:21-opus-65710
http://hdl.handle.net/10900/47972
Dokumentart: ResearchPaper
Date: 2012
Source: University of Tübingen Working Papers in Economics and Finance ; 48
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Europäische Union , Währungsunion , Währungsrisiko
Other Keywords:
EMU , European Monetary Union , GIIPS , Public debt , Risk perception , Sovereign bond yields
License: Publishing license excluding print on demand
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Abstract:

Using annual data for 21 OECD countries we provide evidence of remarkable mispricing of sovereign bonds for the so-called GIIPS countries before the start of the financial crisis. Our results also qualify the view of pronounced overpricing in the crisis. In detail, we find: (i) Since the 1980s the role of public debt for the pricing of government bonds has changed twice: First-time in the aftermath of the signing of the Maastricht treaty, and again with the wake-up call due to the onset of the financial crisis. (ii) Before the financial crisis EMU member countries had de facto been perceived as a homogenous group with regard to the role of public debt for sovereign risk pricing. (iii) With the reconsideration of country-specific fundamentals the role of public debt has not only been revived but its impact upon bond yield spreads has become comparable to the time before the Maastricht treaty.

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