IDEAS home Printed from https://ideas.repec.org/p/gmf/wpaper/2012-10.html
   My bibliography  Save this paper

Financial Crisis and Domino Effect

Author

Listed:
  • Pedro Bação

    () (Faculty of Economics, University of Coimbra and GEMF, Portugal)

  • João Maia Domingues

    () (Faculty of Economics, University of Coimbra, Portugal)

  • António Portugal Duarte

    () (Faculty of Economics, University of Coimbra and GEMF, Portugal)

Abstract

This paper analyses the spread of the sovereign debt crisis in the Eurozone. To this end we employ three approaches. The first approach employs univariate autoregressive models. These allow the identification of shocks to government bond yields in Portugal, Italy, Ireland, Greece, Spain and Germany. The timing of the shocks is then analysed in search for evidence of a domino effect. The second approach applies the same identification procedure to VAR models estimated for each country. Finally, the third approach computes Granger causality tests between government bond yields in those countries. The results from the first two approaches do not appear to favor the contagion hypothesis. Nevertheless, the third approach, when bivariate VAR models are used, suggests that there may be interdependence between Greece, Ireland and Portugal, which might have justified European intervention to stop the crisis from spreading.

Suggested Citation

  • Pedro Bação & João Maia Domingues & António Portugal Duarte, 2012. "Financial Crisis and Domino Effect," GEMF Working Papers 2012-10, GEMF, Faculty of Economics, University of Coimbra.
  • Handle: RePEc:gmf:wpaper:2012-10
    as

    Download full text from publisher

    File URL: http://gemf.fe.uc.pt/workingpapers/pdf/2012/gemf_2012-10.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
    2. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
    3. Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 717-763, July.
    4. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
    5. João Sousa Andrade & Adelaide Duarte, 2011. "The Fundamentals of the Portuguese Crisis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(2), pages 195-218, June.
    6. Pedro Bação & António Portugal Duarte, 2011. "Accession to the European Union, Interest Rates and Indebtedness: Greece and Portugal," Book Chapters, Institute of Economic Sciences.
    7. Constantin Gurdgiev & Brian M. Lucey & Ciarán Mac an Bhaird & Lorcan Roche-Kelly, 2011. "The Irish Economy: Three Strikes and You’re Out?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(1), pages 19-41, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pedro Bação & António Portugal Durate & Mariana Simões, 2013. "The International Monetary System in Flux: Overview and Prospects," GEMF Working Papers 2013-07, GEMF, Faculty of Economics, University of Coimbra.

    More about this item

    Keywords

    contagion; financial crisis; Granger causality; identification of shocks; sovereign debt crisis;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gmf:wpaper:2012-10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ana Seiça). General contact details of provider: http://edirc.repec.org/data/cebucpt.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.