Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154099
Authors: 
Claeys, Peter
Vašíček, Bořek
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1666
Abstract: 
The global financial crisis rapidly spread across borders and financial markets, and also distressed EU bond markets. The crisis did not hit all markets in the same way. We measure the strength and direction of linkages between 16 EU sovereign bond markets using a factor-augmented version of the VAR model in Diebold and Yilmaz (2009). We then provide a novel test for contagion by applying the multivariate structural break test of Qu and Perron (2007) on this FAVAR detecting significant sudden changes in shock transmission. Results indicate substantial spillover, especially between EMU countries. Differences in bilateral linkages are due to a combination of fiscal trouble and a large banking sector, as Belgium, Italy and Spain are central to shock transmission during the financial crisis. Contagion has been a rather rare phenomenon limited to a few well defined moments of uncertainty on financial assistance packages for Greece, Ireland and Portugal. Most of the frequent surges in market co-movement are driven by larger shocks rather than by contagion.
Subjects: 
Contagion
eurozone
FAVAR
financial crisis
fiscal policy
spillover
JEL: 
G12
C14
E43
E62
H62
H63
Document Type: 
Working Paper

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