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Pure or wake-up-call contagion? Another look at the EMU sovereign debt crisis

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Listed:
  • Raffaela Giordano

    () (Bank of Italy)

  • Marcello Pericoli

    () (Bank of Italy)

  • Pietro Tommasino

    () (Bank of Italy)

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.

Suggested Citation

  • Raffaela Giordano & Marcello Pericoli & Pietro Tommasino, 2013. "Pure or wake-up-call contagion? Another look at the EMU sovereign debt crisis," Temi di discussione (Economic working papers) 904, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_904_13
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    References listed on IDEAS

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    More about this item

    Keywords

    sovereign bond spread; contagion; non-stationary panels.;

    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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