Graduation Year

Spring 2014

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Cameron Shelton

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Terms of Use for work posted in Scholarship@Claremont.

Rights Information

© 2014 Steven Limandibhratha

Abstract

This paper looks at the determinants of bond yields for a select group of Eurozone countries, during the European sovereign debt crisis. In addition to traditional determinants of spreads, which include credit risk, liquidity risk and international risk aversion, this paper looks at the role of credit rating agencies. The movements of countries’ yields during the debt crisis played an integral role in the resulting bailouts by the European Union. Using expected data published by the European Commission, the results of the model were in line with current literature, with the exception of the effect of budget deficits. One interpretation of the conflicting results is that during a debt crisis what market participants care about is growth, not austerity. Including the effect of credit ratings showed that credit ratings have high predictive power.

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