German long-term government bond yields. 2/ Difference between post-2008 peak and 2008; percentage points. For DNK, LUX, ITA, EST, CYP, IRL, LVA and GRC – 2007 is the benchmark year (same for GDP decline). 3/ Difference between post-2008 trough and 2008; in percent. 4/ Risk premium peaks at less than 350 basis points. 5/ Risk premium peaks at more than 350 basis points. This was so for two reasons. One reason was that risk premium surges were associated with deep recessions ( Figure 3.1 ). Indeed, the larger the risk premium shock, the
to record high levels in a wide range of advanced economies and the spread against U.S. dollar Libor, which in normal times fluctuates around near zero, widened sharply to record highs as market transactions de facto froze ( Box 2 ). Countries with financial institutions that rely heavily on dollar funding markets, such as Sweden and Australia, were affected, and the spread against US dollar Libor (risk premium) surged ( Figure 6 ). 11 In most cases, market dysfunction measured in this way lasted for two to three weeks ( Figure 7 ). While this event indicates that