Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128074
Authors: 
Brutti, Filippo
Sauré, Philip
Year of Publication: 
2012
Series/Report no.: 
Working Paper, Study Center Gerzensee 12.01
Abstract: 
We assess the role of financial linkages for the transmission of sovereign risk in the Euro Crisis. Building on the narrative approach by Romer and Romer (1989), we use financial news to identify structural shocks in a VAR model of daily sovereign CDS for eleven European countries. To estimate how these shocks transmit across borders, we use data on cross-country bank exposures to sovereign debt. Our results indicate that exposure to Greek sovereign debt and debt of Greek banks constitute important transmission channels. Overall, financial linkages explain up to two thirds of transmission of sovereign debt in the Euro Crisis.
Subjects: 
Cross-country Transmission
Sovereign Risk
Financial Linkages
Euro Crisis
Narrative Approach
JEL: 
F36
F42
F21
C30
Document Type: 
Working Paper

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