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The impact of COVID-19 on sovereign contagion

Author

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  • Drakos, Anastasios
  • Moratis, Georgios

Abstract

In the midst of the unprecedented COVID-19 pandemic crisis, the scope of the current study is to outline the channels of shock propagation across sovereigns under these unprecedent conditions. We use a sample of European countries for a period of twelve years that encompasses the COVID-19 as well as the turbulent period of the European debt crisis. We apply Bayesian Vector Autoregressive techniques to show a dramatic increase in sovereign contagion during the outbreak of the COVID-19 pandemic, even higher than the increase recorded during the European Debt crisis. The result works through government response and containment measures. Extensive and severe detachment from any financial fundamentals is evident. The announcements of fiscal and monetary easing measures have eliminated the tension in the markets. When focusing on the period of the pandemic the impact of the national culture emerges through the channel of collectivism.

Suggested Citation

  • Drakos, Anastasios & Moratis, Georgios, 2024. "The impact of COVID-19 on sovereign contagion," Journal of Financial Stability, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finsta:v:70:y:2024:i:c:s157230892300089x
    DOI: 10.1016/j.jfs.2023.101189
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    More about this item

    Keywords

    COVID-19; Contagion; Sovereign risk; Dynamic panel analysis; Spillover matrix;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • I1 - Health, Education, and Welfare - - Health

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