Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154143
Authors: 
Camba-Méndez, Gonzalo
Serwa, Dobromil
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1710
Abstract: 
We study market perception of sovereign credit risk in the euro area during the financial crisis. In our analysis we use a parsimonious CDS pricing model to estimate the probability of default (PD) and the loss given default (LGD) as perceived by financial markets. We find that separate identification of PD and LGD appears empirically tractable for a number of euro area countries. In our empirical results the estimated LGDs perceived by financial markets stay comfortably below 40% in most of the samples. We also find that macroeconomic and institutional developments were only weakly correlated with the market perception of sovereign credit risk, whereas financial contagion appears to have exerted a non-negligible effect.
Subjects: 
CDS spreads
euro area
loss given default. ECB
probability of default
sovereign credit risk
JEL: 
C11
C32
G01
G12
G15
ISBN: 
978-92-899-1118-4
Document Type: 
Working Paper

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