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Pure or Wake-up-Call Contagion? Another Look at the EMU Sovereign Debt Crisis

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Listed author(s):
  • Raffaela Giordano
  • Marcello Pericoli
  • Pietro Tommasino

Abstract

We test whether the sharp increase in sovereign spreads of euro area countries with respect to Germany after the explosion of the Greek crisis was due to deteriorating macroeconomic and fiscal fundamentals or to some form of financial contagion. Our analysis includes indicators of domestic and external imbalances which were mostly disregarded by previous studies, and distinguishes between investors' increased attention to the variables which ultimately determine the creditworthiness of a sovereign borrower (wake-up-call contagion) and behaviour not linked to fundamentals (pure contagion). We find evidence of wake-up-call contagion but not of pure contagion.

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File URL: http://hdl.handle.net/10.1111/j.1468-2362.2013.12033.x
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Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 16 (2013)
Issue (Month): 2 (06)
Pages: 131-160

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Handle: RePEc:bla:intfin:v:16:y:2013:i:2:p:131-160
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Find related papers by JEL classification:
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • G01 - Financial Economics - - General - - - Financial Crises
  • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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