Empirical analysis of sovereign default risk in the Euro Area

Abstract EN

The turbulence that characterized the euro area countries notably the manifestation of sovereign risk which results in the unsustainability of public debt and the increase in the cost of borrowing because of the increase in risk aversion in international markets, inspired us to study determinants that explain the dynamics of sovereign spreads, particularly the increase in the sovereign CDS spread, using an empirical and/or econometric approach.

The purpose of this article is to analyze the risk factors which determine the aggravation of the sovereign risk, necessary to know especially in the current unfavorable macroeconomic context which is likely to cause the surge of the public debt of the most vulnerable economies.

We will conduct a descriptive analysis on the stylized facts of the manifestation of sovereign default risk by examining the volatility of sovereign bond yields and the widening of sovereign CDS premiums, and an econometric analysis of this risk in order to determine the main factors that explain the resurgence of this risk during the debt crisis in the euro area, using an approach by panel data with the FGLS estimator.