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Euro area CDS spreads in the crisis: The role of open market operations and contagion

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  • Gerlach, Petra

Abstract

This paper studies euro area CDS spreads during the financial crisis. We examine the impact of the crisis on both commercial banks and sovereigns, and focus on two questions. First, have the ECB's open market operations reduced market stress? It seems that large repo volumes, especially if credited to banks the same day, helped initially, and that the announcement of the Securities Market Programme also calmed markets. Asset purchase volumes do not seem to matter directly. Second, was there contagion among and between banks and sovereigns? We find evidence for both. Interestingly, sovereign CDS spreads appear immune after April 2010. We argue that this might reflect the ECB's efforts to stop contagion during the euro crisis.

Suggested Citation

  • Gerlach, Petra, 2013. "Euro area CDS spreads in the crisis: The role of open market operations and contagion," Papers WP449, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp449
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    File URL: http://www.esri.ie/pubs/WP449.pdf
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    References listed on IDEAS

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    1. Heiko Hesse & Nathaniel Frank, 2009. "The Effectiveness of Central Bank Interventions During the First Phase of the Subprime Crisis," IMF Working Papers 09/206, International Monetary Fund.
    2. John O’Neill, 2009. "Market," Chapters,in: Handbook of Economics and Ethics, chapter 42 Edward Elgar Publishing.
    3. John B. Taylor & John C. Williams, 2009. "A black swan in the money market," Proceedings, Federal Reserve Bank of San Francisco.
    4. International Monetary Fund, 2009. "How to Stop a Herd of Running Bears? Market Response to Policy Initiatives during the Global Financial Crisis," IMF Working Papers 09/204, International Monetary Fund.
    5. Michael D. Bauer & Glenn D. Rudebusch, 2014. "The Signaling Channel for Federal Reserve Bond Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 233-289, September.
    6. Jack Meaning & Feng Zhu, 2011. "The impact of recent central bank asset purchase programmes," BIS Quarterly Review, Bank for International Settlements, December.
    7. Johannes C. Stroebel & John B. Taylor, 2009. "Estimated Impact of the Fed's Mortgage-Backed Securities Purchase Program," NBER Working Papers 15626, National Bureau of Economic Research, Inc.
    8. John B. Taylor & John C. Williams, 2009. "A black swan in the money market," Proceedings, Federal Reserve Bank of San Francisco.
    9. Emil Stavrev & Thomas Harjes & Martin Cihak, 2009. "Euro Area Monetary Policy in Uncharted Waters," IMF Working Papers 09/185, International Monetary Fund.
    10. Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
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    Cited by:

    1. Petra Gerlach-Kristen, 2015. "The impact of ECB crisis measures on euro-area CDS spreads," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, pages 149-168.
    2. repec:eee:jimfin:v:78:y:2017:i:c:p:21-43 is not listed on IDEAS

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