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Financial Market Linkages and the Sovereign Debt Crisis

Author

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  • Susana Campos-Martins
  • Cristina Amado

Abstract

We develop a novel approach to investigate the presence of financial contagion during the European sovereign debt crisis. The novelty lies in modelling bond yield market comovements allowing the individual long-run variances to be time-dependent and the correlations to change smoothly between two extreme states according to time and observable financial variables. The new model has the flexibility to discern between long-run and short-run contagion effects on the basis of the variable used as indicator for the time-variation in correlations. The main results provide evidence of long-run contagion effects across peripheral countries following the more acute phase of the sovereign crisis.

Suggested Citation

  • Susana Campos-Martins & Cristina Amado, 2021. "Financial Market Linkages and the Sovereign Debt Crisis," Economics Series Working Papers 946 JEL classification: C, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:946
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