Cover IMF Working Papers
Euro Area Sovereign Risk During the Crisis
Author: Ms. Edda Zoli and Ms. Silvia Sgherri
Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 222
Language:
English
Publication Date:
01 Oct 2009
DOI:
https://doi.org/10.5089/9781451873696.001
ISBN:
9781451873696
ISSN:
1018-5941
Pages:
23
Keywords:
WP; financial market; sovereign bond; bond market
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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While the use of public resources is critical to cushion the impact of the financial crisis on the euro-area economy, it is key that the entailed fiscal costs not be seen by markets as undermining fiscal sustainability. From this perspective, to what extent do movements in euro area sovereign spreads reflect country-specific solvency concerns? In line with previous studies, the paper suggests that euro area sovereign risk premium differentials tend to comove over time and are mainly driven by a common time-varying factor, mimicking global risk repricing. Since October 2008, however, there is evidence that markets have become progressively more concerned about the potential fiscal implications of national financial sectors' frailty and future debt dynamics. The liquidity of sovereign bond markets still seems to play a significant (albeit fairly limited) role in explaining changes in euro area spreads.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund