Relationships between Financial Sectors’ CDS Spreads and Other Gauges of Risk: Did the Great Recession Change Them?
47 Pages Posted: 8 Sep 2011
Date Written: August 13, 2011
The objectives are to discern how the three financial sectors’ CDS spreads interrelate to each other and with three other risks under the full sample and two subperiods: The 2007 Great Recession, and the 2009 recovery, and to assess the impact of QE1 on those risks in the second subperiod. The results indicate that the own and cross effects among the CDS’s and the other risk measures are significant and contagious. The system has become less stable and less adjusting to the equilibrium in the first subperiod. QE1 in the second period decreases risks but increases inflationary expectations.
Keywords: CDS, Risk Premium, Great Recession, Quantitative Easing
JEL Classification: C12, G12, G20
Suggested Citation: Suggested Citation