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The Asymmetrical Impact Of Policy Responses On Volatility Of Sovereign Default Swaps

Author

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  • ERER, Deniz

    (Ege University, İzmir, Turkey.)

Abstract

The COVID-19 pandemic has adversely influenced economies around the world through supply and demand channels. The increasing uncertainty and the decreasing demand due to the strict social measures of the government to cushion the spread of the pandemic have transformed COVID-19 from a health crisis into an economic crisis. To moderate the negative economic atmosphere during this period, the governments have implemented expansionary fiscal policy. The purpose of this paper is to investigate the impacts of the social and economic measures taken during COVID-19 on the volatility of sovereign credit default swaps for Turkey, Italy, Spain, the United Kingdom, and the United States. The empirical findings indicate that social distancing measures increase uncertainty, but health and economic policies moderate the negative impacts on the economy of Turkey, Spain, and the United Kingdom. The impact of the policies in question is greater in the high number of case regimes.

Suggested Citation

  • ERER, Deniz, 2022. "The Asymmetrical Impact Of Policy Responses On Volatility Of Sovereign Default Swaps," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 26(3), pages 35-54, September.
    • Handle: RePEc:vls:finstu:v:26:y:2022:i:3:p:35-54
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    More about this item

    Keywords

    Credit default swap premium; public policies; threshold regression;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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