Excerpt
Excerpt
A tale of two divergences. Alberto Alesina. April 28, 2012. Paper. "The divergence in sovereign spreads across Eurozone members has been the object of much attention. This column looks at divergence across US states and finds that unexpected deficits are correlated with higher state bond yields across all states. This effect is larger for states with left-leaning political systems, suggesting that bond-market participants view political variables as relevant in assessing the risk characteristics of sub-sovereign bonds. One of the casualties of the financial crisis has been the idea that the sovereign debt of industrial economies is safe..." Link