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Causality and contagion in peripheral EMU public debt markets: a dynamic approach

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  • Marta Gómez-Puig

    ()
    (Faculty of Economics, University of Barcelona)

  • Simón Sosvilla-Rivero

    ()
    (Universidad Complutense de Madrid)

Abstract

Our research aims to analyze the causal relationships in the behavior of public debt issued by peripheral member countries of the European Economic and Monetary Union (EMU), with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009. With this goal in mind, we make use of a database of daily frequency of yields on 10-year government bonds issued by five EMU countries (Greece, Ireland, Italy, Portugal and Spain), covering the entire history of the EMU from its inception on 1 January 1999 until 31 December 2010. In the first step, we explore the pair-wise causal relationship between yields, both for the whole sample and for changing subsamples of the data, in order to capture the possible time-varying causal relationship. This approach allows us to detect episodes of contagion between yields on bonds issued by different countries. In the second step, we study the determinants of these contagion episodes, analyzing the role played by different factors, paying special attention to instruments that capture the total national debt (domestic and foreign) in each country.

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Bibliographic Info

Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 201116.

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Length: 55 pages
Date of creation: Sep 2011
Date of revision: Sep 2011
Handle: RePEc:ira:wpaper:201116

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Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/
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Keywords: Sovereign bond yields; causality; time-varying contagion; euro area; peripheral EMU countries. JEL classification:E44; F36; G15;

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