Pure or Wake-Up-Call Contagion? Another Look at the EMU Sovereign Debt Crisis

40 Pages Posted: 3 May 2013

Date Written: April 24, 2013

Abstract

We test whether the sharp increase in sovereign spreads of euro area countries with respect to Germany after the explosion of the Greek crisis was due to deteriorating macroeconomic and fiscal fundamentals or to some form of financial contagion. Our analysis includes indicators of domestic and external imbalances which were mostly disregarded by previous studies, and distinguishes between investors' increased attention to the variables which ultimately determine the creditworthiness of a sovereign borrower (wake-up-call contagion) and behaviour not linked to fundamentals (pure contagion). We find evidence of wake-up-call contagion but not of pure contagion.

Keywords: sovereign bond spread, contagion, non-stationary panels

JEL Classification: E62, G01, H62

Suggested Citation

Giordano, Raffaela and Pericoli, Marcello and Tommasino, Pietro, Pure or Wake-Up-Call Contagion? Another Look at the EMU Sovereign Debt Crisis (April 24, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 904. Available at SSRN: https://ssrn.com/abstract=2259600 or http://dx.doi.org/10.2139/ssrn.2259600

Raffaela Giordano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Marcello Pericoli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

HOME PAGE: http://www.bancaditalia.it

Pietro Tommasino

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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