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Spread the News: How the Crisis Affected the Impact of News on the European Sovereign Bond Markets

Author

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  • Beetsma, Roel
  • de Jong, Frank
  • Giuliodori, Massimo
  • Widijanto, Daniel

Abstract

We investigate how "news" affected domestic interest spreads vis-à-vis Germany and how it propagated to other countries during the recent crisis period, thereby distinguishing between the so-called GIIPS countries and other European countries. We make original use of the Eurointelligence newsflash to construct news variables based on the amount of news that is released on a country on a given date. We find that more news on average raises the domestic interest spread of GIIPS countries since September 2009. In addition, we find that it leads to an increase in the interest spreads of other GIIPS countries. The magnitude of the news effects is related to cross-border bank holdings. A split of news into bad and good news shows that the upward pressure on domestic and foreign interest spreads is driven by bad news. We also find spill-overs of bad news from GIIPS countries onto non-GIIPS countries. However, the magnitude of these spill-overs is substantially smaller than that to other GIIPS countries.

Suggested Citation

  • Beetsma, Roel & de Jong, Frank & Giuliodori, Massimo & Widijanto, Daniel, 2012. "Spread the News: How the Crisis Affected the Impact of News on the European Sovereign Bond Markets," CEPR Discussion Papers 9043, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9043
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    References listed on IDEAS

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    Cited by:

    1. Ehrmann, Michael & Osbat, Chiara & Stráský, Jan & Uusküla, Lenno, 2014. "The euro exchange rate during the European sovereign debt crisis – Dancing to its own tune?," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 319-339.
    2. Li, Youwei & Waterworth, James, 2016. "Eurozone network connectedness during calm and crisis: evidence from the MTS platform for interdealer trading of European sovereign debt," MPRA Paper 71221, University Library of Munich, Germany.
    3. repec:eee:poleco:v:57:y:2019:i:c:p:3-21 is not listed on IDEAS
    4. Blasques, Francisco & Koopman, Siem Jan & Lucas, Andre & Schaumburg, Julia, 2016. "Spillover dynamics for systemic risk measurement using spatial financial time series models," Journal of Econometrics, Elsevier, vol. 195(2), pages 211-223.
    5. Faia, Ester, 2017. "Sovereign risk, bank funding and investors’ pessimism," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 79-96.

    More about this item

    Keywords

    co-movement; Euro-intelligence; GIIPS; interest rate spreads; new variables; non-GIIPS; spill-overs;

    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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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