Interest rate convergence, sovereign credit risk and the European debt crisis: a survey

Purpose This paper aims to briefly review the literature on interest rate convergence and the European debt crisis with a special focus on the current fiscal problems of some governments in Europe. Design/methodology/approach Relevant empirical papers are identified and reviewed focusing on time ser...

Full description

Saved in:
Bibliographic Details
Published in:The journal of risk finance 2017-01, Vol.18 (4), p.432-442
Main Authors: Gruppe, Mario, Basse, Tobias, Friedrich, Meik, Lange, Carsten
Format: Article
Language:English
Subjects:
Banking
Bond issues
Capital budgeting
Central banks
Credit risk
Currency
Deficit financing
Derivatives
Economic models
Economics
Euro
Eurozone
Federal Reserve monetary policy
Fixed exchange rates
Foreign exchange rates
Government bonds
Interest rates
International finance
Monetary policy
Monetary unions
Neural networks
Politics
Securities markets
Supranationalism
Time series
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Purpose This paper aims to briefly review the literature on interest rate convergence and the European debt crisis with a special focus on the current fiscal problems of some governments in Europe. Design/methodology/approach Relevant empirical papers are identified and reviewed focusing on time series analysis techniques. Findings The introduction of the euro has caused interest rate convergence among European Monetary Union (EMU) government bond yields. However, now sovereign credit risk and possibly even redenomination risk have caused divergences in European bond markets. Research limitations/implications A major limitation is that a relatively new field of the literature is surveyed. However, there are enough papers of relevance. This review paper could therefore be helpful in finding new approaches for additional empirical research examining the EMU bond market. Originality/value The results of empirical studies in a relatively new field of the literature are summarized. There meanwhile are some relevant papers. A brief survey of the results of these papers is provided. Important empirical findings with regard to interest rate convergence, sovereign credit risk and redenomination risk in the EMU are discussed and evaluated. The review is especially helpful for researchers and practitioners in the field of managerial finance and risk managers in the financial services industry.
ISSN:1526-5943
2331-2947
DOI:10.1108/JRF-01-2017-0013