Online ISSN 2286-0266
Print ISSN 1223-0685
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Adina Elena FUDULACHE
Université Toulouse 1 Capitole
This paper investigates the main determinants of the market-assessed sovereign risk premium in Romania, measured by the Option-Adjusted Spreads, from 2003 to 2013. The results show that the dynamics of sovereign spreads can be explained by both risk aversion indicators and macroeconomic fundamentals. Domestic fundamentals are found to be significant in explaining the spreads prior to and after the crisis. However, due to a regime switching for the Eurozone market volatility, Romania experienced a re-pricing in its market-assessed risk premium associated with the financial crisis outburst: the changes in the Eurozone volatility were not statistically significant before the financial turmoil, but Romanian sovereign spreads started to respond to them as the crisis broke out. Furthermore, risk-premium shocks appear to have important macroeconomic effects. With respect to the risk premium management by the monetary authority, the NBR monetary policy does not appear to respond contemporaneously to a risk premium shock. However, I argue that a quick response of the policy stance might strengthen the financial and price stability and may also have macroeconomic benefits.

ŒCONOMICA no. 2/2014
Keywords: sovereign spreads, macroeconomic fundamentals, European volatility, financial crisis, risk premium shocks
JEL: C22, C32, E43, E44, E58, F34, G12
Modelling the Dynamics of Sovereign Risk Premium [Modelarea dinamicii primei de risc suveran]