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“How systemic is Spain for Europe?”

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  • Peter Claeys

    ()
    (Faculty of Economics, University of Barcelona)

  • Borek Vašícek

    ()
    (Czech Czech National Bank, Economic Research Department)

Abstract

We use the forecast-error variance decompositions from a VAR with daily sovereign bonds spreads since 2000 to detail the linkages between EU sovereign bond markets and banks over time. Using new summary statistics on the matrix of bilateral linkages, we show Spain is systemic for Europe. Its fiscal problems expose it to trouble in sovereign bond markets of the other Club Med countries, whereas its internationally grown banking sector transmits domestic economic trouble to the rest of Europe. This spillover has substantially increased since the outbreak of the Fiscal Crisis in the Eurozone in May 2010. We develop a real-time indicator to follow the degree of spillover on a daily basis.

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Bibliographic Info

Paper provided by University of Barcelona, Regional Quantitative Analysis Group in its series AQR Working Papers with number 201301.

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Length: 46 pages
Date of creation: Feb 2013
Date of revision: Feb 2013
Handle: RePEc:aqr:wpaper:201301

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Keywords: spillover; contagion; sovereign bond spreads; fiscal policy; Eurozone; financial crisis; sovereign ratings.. JEL classification: G12; C14; E43; E62; G12; H62; H63;

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References

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Cited by:
  1. Michał Adam, 2013. "Spillovers and contagion in the sovereign CDS market," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 44(6), pages 571-604.

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