RT Journal Article
T1 Quantifying sovereign risk in the euro area
A1 Singh, Manish K.
A1 Gómez Puig, Marta
A1 Sosvilla Rivero, Simón Javier
AB The choice of the optimal sovereign risk indicator is crucial in the context of the euro area (EA) countries, which faced a fierce sovereign debt crisis. Traditional indicators of sovereign risk (CDS, bond yields, and credit rating) do not take into consideration the priority structure of creditors and are highly influenced by market sentiment. We propose a new indicator (distance to default, DtD) to quantify sovereign risk for eleven EA countries over the period 2004Q1-2019Q4. Using contingent claims' methodology, DtD incorporates the seniority structure of creditors in an existing theoretical model. Our results suggest that (1) DtD is a leading indicator of sovereign risk and (2) adding information from the public sector's balance sheet structure to market information, helps better incorporate macroeconomic fundamentals in the sovereign risk measure, overcoming some of the weaknesses documented in the traditional indicators.
PB Elsevier
SN 0264-9993
YR 2021
FD 2021
LK https://hdl.handle.net/20.500.14352/104782
UL https://hdl.handle.net/20.500.14352/104782
LA eng
NO Singh, M. K., Gómez-Puig, M., Sosvilla-Rivero, S. Quantifying sovereign risk in the euro area. Economic Modelling, Volume 95, 2021, Pages 76-96.
NO Ministerio de Economía y Competitividad (España)
NO Instituto de Estudios Fiscales
DS Docta Complutense
RD 25 dic 2025