Towards a Common European Monetary Union Risk Free Rate / Sergio Mayordomo, Juan Ignacio Peña, Eduardo S. Schwartz.

Format:

Book

Author/Creator:

Mayordomo, Sergio.

Contributor:

National Bureau of Economic Research.

Peña, Juan Ignacio.

Schwartz, Eduardo S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15353.

NBER working paper series no. w15353

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

A common European bond would yield a common European Monetary Union risk free rate. We present tentative estimates of this common risk free for the European Monetary Union countries from 2004 to 2009 using variables motivated by a theoretical portfolio selection model. First, we analyze the determinants of EMU sovereign yield spreads and find significant effects of the credit quality, macro, correlation, and liquidity variables. However, their effects are different before and after the current financial crisis, being stronger in the latter period. Robustness tests with different data frequencies, benchmarks, liquidity variables, cross section regressions and balanced panels confirm the initial results. We propose four different estimates of the common risk free rate and show that, in most cases, this common rate could imply savings in borrowing costs for all the countries involved.

Notes:

Print version record

September 2009.