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Sovereign Financial Asset Market Linkages across Europe During the Euro Zone Debt Crisis

Author

Listed:
  • Moisă Altăr

    () (The Bucharest University of Economic Studies, The Romanian American University – FINSYS)

  • Alexandru-Adrian Cramer

    () (The Romanian – American University - FINSYS)

  • Adam-Nelu Altăr-Samuel

    () (The Romanian – American University, Bucharest, Romania)

Abstract

We estimate a GVAR model of the European Union (EU) sovereign bond spreads and Credit Default Swap (CDS) differentials with respect to their German counterparts, based on monthly observations from November 2009 to March 2015. We capture time- varying interdependence among variables by computing annual weight matrices based on “macro distances” between countries. This measure of distance is similar to the “fiscal distance” recently used in literature, but more comprehensive. The model is augmented with a Dominant Unit, comprising a number of three market-based global variables. Aggregating the country variables into four regions (Eurocore, Europeriphery, non-euro CEE countries and Non-euro Developed countries), we perform a dynamic analysis to investigate: the propagation of shocks coming from Greece or from Europeriphery to the EU sovereign markets; the behavior of the two non-euro regions sovereigns; the main channels of contagion across each region; the interactions between the EU sovereign markets and the global risk sentiment; the spillover effects of the latest policy actions of the ECB outside the Euro Zone.

Suggested Citation

  • Moisă Altăr & Alexandru-Adrian Cramer & Adam-Nelu Altăr-Samuel, 2015. "Sovereign Financial Asset Market Linkages across Europe During the Euro Zone Debt Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 29-49, December.
  • Handle: RePEc:rjr:romjef:v::y:2015:i:4:p:29-49
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    bond spreads; CDS differentials; macro distance; spillover; contagion; propagation; shocks; European Union;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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