Faculty of Economics and Sociology of the University of Lodz
Abstract
JEL: C23, E43, E62, F34, G01, G12, H60This paper aims at shedding some light on the mechanisms of pricing the EMU countries’
sovereign bonds in financial markets. Employing the Augmented Mean Group (AMG)
estimator, we find that major changes have occurred in terms of variables underlying
sovereign risk. Since 2009, macroeconomic and fiscal fundamentals has started to play a more
important role, but only those that capture domestic demand evolution. In contrast, price
competitiveness seems less important. The second conclusion lies in reversed attitude towards
banking sector imbalances, as compares to earlier period. One of the problems addressed
concerns the horizon of projected macroeconomic and fiscal variables taken into account. The
paper presents some evidence that financial markets have become more myopic and started to
rely on short-term forecasts, whilst they had tended to encompass longer-term forecast
horizon before the crisis