The EMU sovereign-debt crisis: fundamentals, expectations\ud and contagion

Book English OPEN
Arghyrou, Michael ; Kontonikas, Alexandros ; Cardiff University (2010)
  • Publisher: Cardiff University
  • Subject: HB

We offer a detailed empirical investigation of the European sovereign debt crisis based on the theoretical model by Arghyrou and Tsoukalas (2010). We find evidence of a marked shift in market pricing behaviour from a ‘convergence-trade’ model before August 2007 to one driven by macro-fundamentals and international risk thereafter. The majority of EMU countries have experienced contagion from Greece. There is no evidence of significant speculation effects originating from CDS markets. Finally, the escalation of the Greek debt crisis since November 2009 is confirmed as the result of an unfavourable shift in country specific market expectations. Our findings highlight the necessity of structural, competitiveness-inducing reforms in periphery EMU countries and institutional reforms at the EMU level enhancing intra-EMU economic monitoring and policy co-ordination.
  • References (19)
    19 references, page 1 of 2

    Adalid, R., Detken, C., 2007. Liquidity shocks and asset price boom/bust cycles. ECB Working Paper Series No. 732.

    Alesina, A., De Broeck, M., Prati, A., Tabellini, G., 1992. Default risk on government debt in OECD countries. Economic Policy 15, 427-451.

    Arghyrou, M.G., Chortareas, G., 2008. Current account imbalances and real exchange rates in the euro-area”. Review of International Economics 16, 747-764.

    Arghyrou, M.G., Tsoukalas, J. 2010. The Greek debt crisis: Likely causes, mechanics and outcomes. The World Economy, forthcoming.

    Attinasi, M-G., Checherita, C., Nickel, C., 2009. What explains the surge in euro-area sovereign spreads during the financial crisis of 2007-09? ECB Working Paper Series No. 1131.

    Barrios, S., Iversen, P., Lewandowska, M., Setzer, R., 2009. Determinants of intra-euro-area government bond spreads during the financial crisis. European Commission, Directorate General for Economic and Financial Affairs, Economic Papers No. 388.

    Bayoumi, T.A., Goldstein, M. Woglom, G., 1995. Do credit markets discipline sovereign borrowers? Evidence from US states. Journal of Money Credit, Credit and Banking 27, 1046-1059.

    Belke, A., Orth, W., Setzer, R., 2010. Liquidity and the dynamic pattern of asset price adjustment: A global view. Journal of Banking and Finance 34, 1933-1945.

    Beber, A., Brandt, M.W., Kavajecz, K.A., 2009. Flight-to-quality or flight-to-liquidity? Evidence from the euro-area bond market. Review of Financial Studies 22, 925-957.

    Becker, S., 2009. EMU sovereign spread widening: Reasonable market reaction or exaggeration? Deutsche Bank Research, Reports on European Integration, EU Monitor 68.

  • Similar Research Results (1)
  • Metrics
    0
    views in OpenAIRE
    0
    views in local repository
    558
    downloads in local repository

    The information is available from the following content providers:

    From Number Of Views Number Of Downloads
    Online Research @ Cardiff - IRUS-UK 0 558
Share - Bookmark