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The EMU sovereign-debt crisis: Fundamentals, expectations and contagion

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  • Arghyrou, Michael G.
  • Kontonikas, Alexandros

Abstract

We offer a detailed empirical investigation of the EMU sovereign-debt crisis. We find 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. We find evidence of contagion effects, particularly among EMU periphery countries. The EMU debt crisis is divided into an early and current crisis period. Unlike the former where contagion was mainly originating from Greece, the latter involves multiple sources of contagion. Finally, the escalation of the Greek debt crisis since November 2009 is due to an unfavourable shift in country-specific market expectations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 22 (2012)
Issue (Month): 4 ()
Pages: 658-677

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Handle: RePEc:eee:intfin:v:22:y:2012:i:4:p:658-677

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Web page: http://www.elsevier.com/locate/intfin

Related research

Keywords: Euro area; Crisis; Spreads; Fundamentals; Expectations; Contagion;

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
  2. Gomez-Puig, Marta, 2006. "Size matters for liquidity: Evidence from EMU sovereign yield spreads," Economics Letters, Elsevier, vol. 90(2), pages 156-162, February.
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