The authors wish to thank for providing useful comments three anonymous referees, Marco Lo Duca, Lorenzo Cappiello, Carsten Detken, Francesco Drudi, Reint Gropp, Philipp Hartmann, José Marín, Philippe Moutot, Frank Packer, José Luis Peydró-Alcalde and Ludger Schuknecht, as well as seminar participants at the European Central Bank, the Bank of England, the Hong Kong Monetary Institute and the 48th Economic Policy panel meeting. The views expressed in this paper are those of the authors and do not necessarily reflect those of the European Central Bank or the Eurosystem. The Managing Editor in charge of this paper was Giuseppe Bertola.
What drives spreads in the euro area government bond market?
Article first published online: 3 APR 2009
© CEPR, CES, MSH, 2009
Volume 24, Issue 58, pages 191–240, April 2009
How to Cite
Manganelli, S. and Wolswijk, G. (2009), What drives spreads in the euro area government bond market?. Economic Policy, 24: 191–240. doi: 10.1111/j.1468-0327.2009.00220.x
- Issue published online: 3 APR 2009
- Article first published online: 3 APR 2009
Spreads between euro area government bond yields are related to short-term interest rates, which are in turn related to market liquidity, to cyclical conditions, and to investors’ incentives to take risk. In theory, lower interest rates are associated with lower degrees of risk aversion and smaller government bond spreads. Empirically, the Eurosystem’s short-term interest rates are positively related to those spreads, which our econometric model finds to include significant and policy-relevant default risk and liquidity risk components.
— Simone Manganelli and Guido Wolswijk