Advanced Search
MyIDEAS: Login to save this paper or follow this series

From Bear Stearns to Anglo Irish

Contents:

Author Info

  • Ashoka Mody

Abstract

This paper attempts to explain the recent rise and differentiation of sovereign spreads across the countries of the eurozone. Following the onset of the subprime crisis in July 2007, spreads rose but mainly on account of common global factors. The rescue of Bear Stearns in March 2008 marked a turning point. Countries thereafter were increasingly differentiated. Sovereign spreads of a eurozone country tended to rise when the prospects of its domestic financial sector worsened. It appears, therefore, that the rescue of Bear Stearns created a link between financial sector vulnerabilities and a larger contingent liability on public finances. Following the failure of Lehman Brothers, spreads also rose faster for countries with higher ratios of public debt-to-GDP. These transitional dynamics appear to have concluded with the nationalization of Anglo Irish: sovereign spreads throughout the eurozone jumped, with the jump emphasizing the differentiation by financial sector vulnerability and public debt levels. The results imply that, to varying degrees, countries may have moved to a new regime of weak economic outlook, financial sector fragilities, and strains on public finances.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=22959
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/108.

as in new window
Length: 39
Date of creation: 01 May 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/108

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Banking crisis; Bonds; Credit risk; European Union; Financial risk; Financial sector; Public debt; Public finance; Sovereign debt; sovereign bond; bond; debt ratios; domestic financial sector; public finances; debt dynamics; bond spreads; sovereign bonds; bond markets; financial system; stock market; financial institutions; stock market volatility; currency risk; financial stocks; government bonds; financial fragility; financial instability; sovereign bond markets; sovereign default; government bond; nominal exchange rate; benchmark government bond; financial vulnerabilities; debt public; net debt; international finance; financial markets; debt servicing; debt ratio;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Barry Eichengreen & Ashoka Mody & Milan Nedeljkovic & Lucio Sarno, 2012. "How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads," Working papers, National Bank of Serbia 21, National Bank of Serbia.
  2. Reinhart, Carmen & Rogoff, Kenneth, 2009. "Banking Crises: An Equal Opportunity Menace," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7131, C.E.P.R. Discussion Papers.
  3. Marco Pagano, 2004. "The European Bond Markets under EMU," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 20(4), pages 531-554, Winter.
  4. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 18(37), pages 503-532, October.
  5. Rudiger Ahrend & Boris Cournède & Robert W.R. Price, 2008. "Monetary Policy, Market Excesses and Financial Turmoil," OECD Economics Department Working Papers 597, OECD Publishing.
  6. Eichengreen, Barry & Mody, Ashoka, 1998. "Interest Rates in the North and Capital Flows to the South: Is There a Missing Link?," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 1(1), pages 35-57, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. International Monetary Fund, 2011. "Did the Euro Crisis Affect Non-Financial Firm Stock Prices Through a Financial or Trade Channel?," IMF Working Papers 11/227, International Monetary Fund.
  2. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2010. "Government bond risk premiums in the EU revisited: the impact of the financial crisis," Working Paper Series, European Central Bank 1152, European Central Bank.
  3. Giovanni Calice & RongHui Miao & Filip Sterba & Borek Vasicek, 2013. "Short-Term Determinants of the Idiosyncratic Sovereign Risk Premium: A Regime-Dependent Analysis for European Credit Default Swaps," Working Papers, Czech National Bank, Research Department 2013/13, Czech National Bank, Research Department.
  4. Miguel A. Segoviano Basurto & Carlos Caceres & Vincenzo Guzzo, 2010. "Sovereign Spreads," IMF Working Papers 10/120, International Monetary Fund.
  5. Salvatore Dell'Erba & Sergio Sola, 2013. "Does Fiscal Policy Affect Interest Rates? Evidence from a Factor-Augmented Panel," IMF Working Papers 13/159, International Monetary Fund.
  6. Peter Claeys & Borek Vašícek, 2012. "“Measuring Sovereign Bond Spillover in Europe and the Impact of Rating News”," IREA Working Papers, University of Barcelona, Research Institute of Applied Economics 201219, University of Barcelona, Research Institute of Applied Economics, revised Nov 2012.
  7. Bank for International Settlements, 2011. "The impact of sovereign credit risk on bank funding conditions," CGFS Papers, Bank for International Settlements, number 43.
  8. Luciana Barbosa & Sónia Costa, 2010. "Determinants of sovereign bond yield spreads in the euro area in," Working Papers, Banco de Portugal, Economics and Research Department w201022, Banco de Portugal, Economics and Research Department.
  9. Ejsing, Jacob & Lemke, Wolfgang, 2011. "The Janus-headed salvation: Sovereign and bank credit risk premia during 2008-2009," Economics Letters, Elsevier, Elsevier, vol. 110(1), pages 28-31, January.
  10. Andrea Cardillo & Andre Zaghini, 2012. "The recent trends in long-term bank funding," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 137, Bank of Italy, Economic Research and International Relations Area.
  11. Conefrey, Thomas & Cronin, David, 2013. "Spillover in Euro Area Sovereign Bond Markets," Research Technical Papers 05/RT/13, Central Bank of Ireland.
  12. Ejsing, Jacob & Lemke, Wolfgang, 2009. "The Janus-headed salvation: sovereign and bank credit risk premia during 2008-09," Working Paper Series, European Central Bank 1127, European Central Bank.
  13. Scott E. Page, 2012. "A complexity perspective on institutional design," Politics, Philosophy & Economics, , vol. 11(1), pages 5-25, February.
  14. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2013. "Granger-causality in peripheral EMU public debt markets: A dynamic approach," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(11), pages 4627-4649.
  15. Edda Zoli, 2013. "Italian Sovereign Spreads," IMF Working Papers 13/84, International Monetary Fund.
  16. Gwion Williams & Rasha Alsakka & Owain ap Gwilym, 2013. "The Impact of Sovereign Credit Signals on Bank Share Prices during the European Sovereign Debt Crisis," Working Papers 13007, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:09/108. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.