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Italian Sovereign Spreads

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  • Edda Zoli
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    Abstract

    Volatility in Italian sovereign spreads has increased since mid-2011. This paper finds that news on the euro area debt crisis and country specific events were important drivers of sovereign spreads. Movements in sovereign spreads affect CDS spreads and bond yields of Italian banks, and are transmitted rapidly to firm lending rates. Banks with lower capital ratios and higher nonperforming loans were found to be more sensitive to swings in sovereign spreads. Credit supply constraints due to bank funding shortages from the sovereign debt crisis were a major factor behind the lending slowdown in late 2011, while in 2012 weak demand appears to have been driving changes in credit more than supply.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/84.

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    Length: 26
    Date of creation: 03 Apr 2013
    Date of revision:
    Handle: RePEc:imf:imfwpa:13/84

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    Related research

    Keywords: Banking sector; Italy; Sovereign debt; Loans; Financial instruments; bond; bonds; government bond; bond yields; bond spreads; debt crisis; recession; government bonds; contagion; sovereign debt crisis; financial crisis; global financial crisis; financial sector; financial crises; financial markets; yields on bonds; bond issuance; bond market; financial contagion; sovereign bond; yields of bonds; financial stability; recessions; liquidity support; bond prices; sovereign bonds; stock price index; financial institutions; corporate bond issuance; sovereign bond market; deposit rates; international bond; government bond yields; equity markets; international finance; severe recession; severe recessions; rating agencies; international bond markets; asian crisis;

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    References

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    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.:
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    1. Martin, V. & Dungey & M., 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Far Eastern Meetings, Econometric Society 574, Econometric Society.
    2. Dungey, Mardi & Fry, Renee & Gonzalez-Hermosillo, Brenda & Martin, Vance, 2006. "Contagion in international bond markets during the Russian and the LTCM crises," Journal of Financial Stability, Elsevier, Elsevier, vol. 2(1), pages 1-27, April.
    3. Marcello Pericoli & Massimo Sbracia, 2001. "A Primer on Financial Contagion," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 407, Bank of Italy, Economic Research and International Relations Area.
    4. Dungey, Mardi & Fry, Renee A. & Gonzalez-Hermosillo, Brenda & Martin, Vance L., 2011. "Transmission of Financial Crises and Contagion: A Latent Factor Approach," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199739837, October.
    5. Ashoka Mody, 2009. "From Bear Stearns to Anglo Irish," IMF Working Papers 09/108, International Monetary Fund.
    6. Del Giovane, Paolo & Eramo, Ginette & Nobili, Andrea, 2011. "Disentangling demand and supply in credit developments: A survey-based analysis for Italy," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(10), pages 2719-2732, October.
    7. Albertazzi, Ugo & Ropele, Tiziano & Sene, Gabriele & Signoretti, Federico Maria, 2014. "The impact of the sovereign debt crisis on the activity of Italian banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 46(C), pages 387-402.
    8. 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.
    9. Paolo Emilio Mistrulli & Valerio Vacca & Gennaro Corbisiero & Silvia del Prete & Luciano Esposito & Marco Gallo & Mariano Graziano & Maurizio Lozzi & Vincenzo Maffione & Daniele Marangoni & Andrea Mig, 2011. "Mutual Guarantee Institutions (MGIs) and small business credit during the crisis," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 105, Bank of Italy, Economic Research and International Relations Area.
    10. Miguel A. Segoviano Basurto & Carlos Caceres & Vincenzo Guzzo, 2010. "Sovereign Spreads," IMF Working Papers 10/120, International Monetary Fund.
    11. Alois Geyer & Stephan Kossmeier & Stefan Pichler, 2004. "Measuring Systematic Risk in EMU Government Yield Spreads," Review of Finance, Springer, Springer, vol. 8(2), pages 171-197.
    12. Antonio Bassanetti & Martina Cecioni, & Andrea Nobili & Giordano Zevi, . "Le principali recessioni italiane: un confronto retrospettivo," Working Papers, Department of the Treasury, Ministry of the Economy and of Finance wp2010-9, Department of the Treasury, Ministry of the Economy and of Finance.
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    Citations

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    Cited by:
    1. Corsetti, Giancarlo & Kuester, Keith & Meier, André & Müller, Gernot J., 2014. "Sovereign risk and belief-driven fluctuations in the euro area," Journal of Monetary Economics, Elsevier, Elsevier, vol. 61(C), pages 53-73.
    2. Alberto Locarno & Alessandro Notarpietro & Massimiliano Pisani, 2013. "Sovereign risk, monetary policy and fiscal multipliers: a structural model-based assessment," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 943, Bank of Italy, Economic Research and International Relations Area.
    3. Paolo Angelini & Giuseppe Grande & Fabio Panetta, 2014. "The negative feedback loop between banks and sovereigns," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 213, Bank of Italy, Economic Research and International Relations Area.

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