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Mispricing of sovereign risk and macroeconomic stability in the Eurozone

de Grauwe, Paul and Ji, Yuemei (2012) Mispricing of sovereign risk and macroeconomic stability in the Eurozone. Jcms: Journal of Common Market Studies, 50 (6). pp. 866-880. ISSN 0021-9886

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Abstract

This article presents evidence that a significant part of the surge in the spreads of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) countries in the eurozone during 2010-11 was disconnected from underlying increases in the debt-to-GDP (gross domestic product) ratios, and was the result of negative market sentiments that became very strong since the end of 2010. It is argued that the systematic mispricing of sovereign risk in the eurozone intensifies macroeconomic instability, leading to bubbles in good years and excessive austerity in bad years.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2012 The Author(s) JCMS: Journal of Common Market Studies © 2012 Blackwell Publishing Ltd.
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
Sets: Departments > European Institute
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 30 Oct 2012 10:14
URL: http://eprints.lse.ac.uk/47134/

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