Causality and Contagion in Peripheral EMU Public Debt Markets: A Dynamic Approach

Research Institute of Applied Economics Working Paper 2011/16

55 Pages Posted: 24 Sep 2011

See all articles by Marta Gómez-Puig

Marta Gómez-Puig

Economic Theory Department. University of Barcelona

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: July 29, 2011

Abstract

Our research aims to analyze the causal relationships in the behavior of public debt issued by peripheral member countries of the European Economic and Monetary Union (EMU), with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009. With this goal in mind, we make use of a database of daily frequency of yields on 10-year government bonds issued by five EMU countries (Greece, Ireland, Italy, Portugal and Spain), covering the entire history of the EMU from its inception on 1 January 1999 until 31 December 2010. In the first step, we explore the pair-wise causal relationship between yields, both for the whole sample and for changing subsamples of the data, in order to capture the possible time-varying causal relationship. This approach allows us to detect episodes of contagion between yields on bonds issued by different countries. In the second step, we study the determinants of these contagion episodes, analyzing the role played by different factors, paying special attention to instruments that capture the total national debt (domestic and foreign) in each country.

Keywords: Sovereign bond yields, causality, time-varying contagion, euro area, peripheral EMU countries

JEL Classification: E44, F36, G15

Suggested Citation

Gómez-Puig, Marta and Sosvilla-Rivero, Simon, Causality and Contagion in Peripheral EMU Public Debt Markets: A Dynamic Approach (July 29, 2011). Research Institute of Applied Economics Working Paper 2011/16. Available at SSRN: https://ssrn.com/abstract=1932378 or http://dx.doi.org/10.2139/ssrn.1932378

Marta Gómez-Puig

Economic Theory Department. University of Barcelona ( email )

Diagonal 690
Barcelona, 08034
Spain
34-93-4020113 (Phone)
34-93-4039082 (Fax)

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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