Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/66502
Authors: 
Steinkamp, Sven
Westermann, Frank
Year of Publication: 
2012
Series/Report no.: 
Working Paper, Institute of Empirical Economic Research, University of Osnabrück 92
Abstract: 
The recent increase of interest rate spreads in Europe and their apparent detachment from underlying fundamental variables has generated a debate on multiple equilibria in the sovereign bond market (see Grauwe and Ji (2012)). We critically evaluate this hypothesis, by pointing towards an alternative explanation: the increasing share of senior lenders (IMF, ECB, EFSF, etc.) in the total outstanding government debt of countries in crisis. We illustrate the close relationship between senior tranche lending - including Target2 balances - and recent developments in the sovereign bond market, both graphically and in a formal regression analysis.
Subjects: 
Government bond spreads
Eurozone
senior tranche lending
multiple equilibria
sovereign debt crisis
Target
JEL: 
F34
G12
H81
Document Type: 
Working Paper

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