Publication

This publication focuses on the time-varying behavior of market participants to assess determinants of government bond spreads in the eurozone. Instead of proxy variables, latent processes are assumed to model the time-varying global factors important for the evaluation of differing default and liquidity risks. The authors find that default risks measured via expected debt-to-GDP ratio explain a good stake of the variation of bond spreads in the eurozone, from 2003 up until the take-off of the 2008/2009 financial crisis.