Is the European sovereign crisis self-fulfilling ? Empirical evidence about the drivers of market sentiments
AbstractWe assess the nature of the European sovereign crisis in the light of a model borrowed from the second generation of currency crises. We bring the theory to the data to empirically test the presence of self-fulfilling dynamics and to identify what may have driven the market sentiment during this crisis. To do so we estimate the probability of default of five European âperipheralâ countries during January 2006 to September 2011 with a panel smooth threshold regression. Our estimation results suggest that 1/ both the fundamentals and âanimal spiritâ ignited the European sovereign crisis; 2/ the sovereign Credit Defa ult Swap market (CDS), the rating agencies and the CDS of the banking sector have played dominant roles in driving market sentiments.
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Bibliographic InfoPaper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2012-22.
Date of creation: Sep 2012
Date of revision:
Other versions of this item:
- Fouquau, Julien & Delatte, Anne-Laure & Bruneau, Catherine, 2012. "Is the European sovereign crisis self-fulfilling? Empirical evidence about the drivers of market sentiments," Economics Papers from University Paris Dauphine 123456789/13144, Paris Dauphine University.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- H6 - Public Economics - - National Budget, Deficit, and Debt
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-06 (All new papers)
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