Causality and Contagion in EMU Sovereign Debt Markets

Research Institute of Applied Economics Working Paper 2014/03

34 Pages Posted: 8 Mar 2014

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: February 3, 2014

Abstract

This paper contributes to the literature by applying the Granger-causality approach and endogenous breakpoint test to offer an operational definition of contagion to examine European Economic and Monetary Union (EMU) countries public debt behaviour. A database of yields on 10-year government bonds issued by 11 EMU countries covering fourteen years of monetary union is used. The main results suggest that the 41 new causality patterns, which appeared for the first time in the crisis period, and the intensification of causality recorded in 70% of the cases, provide clear evidence of contagion in the aftermath of the current euro debt crisis.

Keywords: Sovereign bond yields, Granger-Causality, Contagion, Euro area.

JEL Classification: E44, F36, G15, C52

Suggested Citation

Gómez-Puig, Marta and Sosvilla-Rivero, Simon, Causality and Contagion in EMU Sovereign Debt Markets (February 3, 2014). Research Institute of Applied Economics Working Paper 2014/03. Available at SSRN: https://ssrn.com/abstract=2405929 or http://dx.doi.org/10.2139/ssrn.2405929

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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