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Contagion and causality: an empirical analysis on sovereign bond spreads

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  • Iuliana Matei

    (University of Evry and University of Paris 1)

Abstract

The current decade was marked by the worst economic and financial crisis since the Great Depression, many economies experiencing a severe contraction of output in late 2008 and early 2009. But, was this evolution of the activity only the result of the domestic factors or a certain form of international contagion influenced it, at least partially? The aim of this paper is to empirically explore the contagion phenomenon during the subprime crisis for seven EU and non-EU countries. To test for contagion, we apply a Granger causality/VECM methodology on sovereign bond spreads as a measure of perceived country risk. Following partially the methodology of Kleimeier and Sander (2003), we investigate two sub-periods: a pre-crisis tranquil period (January, 1st 2003-July 29, 2007) and a crisis period (July 2, 2007 -September 1, 2009). Results highlight the fact that the causality patterns have changed during the crisis period compared to the pre-crisis tranquil period.

Suggested Citation

  • Iuliana Matei, 2010. "Contagion and causality: an empirical analysis on sovereign bond spreads," Economics Bulletin, AccessEcon, vol. 30(3), pages 1885-1896.
    • Handle: RePEc:ebl:ecbull:eb-10-00286
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    References listed on IDEAS

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    1. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
    2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2003. "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 51-74, Fall.
    3. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
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    Cited by:

    1. Panagiotis Petrakis & Emmanuel Papadakis & Nikoleta Daniilopoulou, 2012. "Public Statements on Sovereign Yield Spreads:The Greek Case," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 6(2), pages 5-16, December.
    2. Wang, Alan T. & Yang, Sheng-Yung & Yang, Nien-Tzu, 2013. "Information transmission between sovereign debt CDS and other financial factors – The case of Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 586-601.
    3. Jinghan Cai & Xiaobing Li, 2018. "Logistics and stock market inter-dependence: the case of China," International Journal of Logistics Economics and Globalisation, Inderscience Enterprises Ltd, vol. 7(3), pages 292-306.
    4. Chang, Guang-Di & Cheng, Po-Ching, 2016. "Evidence of cross-asset contagion in U.S. markets," Economic Modelling, Elsevier, vol. 58(C), pages 219-226.

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    More about this item

    Keywords

    Contagion phenomena; Granger Causality; Cointegration; EU;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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