Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180639
Authors: 
Bayer, Christian
Kim, Chi Hyun
Kriwoluzky, Alexander
Year of Publication: 
2018
Series/Report no.: 
DIW Discussion Papers No. 1740
Abstract: 
This paper assesses redenomination risk in the euro area. We first estimate daily default-risk-free yield curves for French, German, and Italian bonds that can be redenominated and for bonds that cannot. Then, we extract the compensation for redenomination risk from the yield spreads between these two types of bonds. Redenomination risk primarily shows up at the short end of yield curves. At the height of the euro crisis, spreads between first-year yields were close to 7% for Italy and up to -2% for Germany. The ECB's interventions designed to reduce the risk of a breakup successfully did so for Italy, but increased it for France and Germany.
Subjects: 
Euro Crisis
Redenomination Risk
Yield Curve
ECB Interventions
JEL: 
E44
F31
F33
F45
G12
G14
Document Type: 
Working Paper

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