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Theory and practice of contagion in monetary unions. Domino effects in EU Mediterranean countries: The case of Greece, Italy and Spain

  • Canofari Paolo
  • Di Bartolomeo Giovanni
  • Piersanti Giovanni

This paper analyzes strategic interactions and contagion effects in countries joined to a monetary union. Using game theory and a cost-benefit analysis, the paper determines the set of equilibrium solutions under which country-specific shocks are transmitted to other member countries giving rise to contagion. Numerical simulations, obtained by a simple calibration of the model on some key Mediterranean countries of the Euro Zone, show the probabilities of contagion from Greece to Spain and Italy.

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File URL: http://wp.comunite.it/data/wp_no_98_2013.pdf
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Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0098.

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Date of creation: Jan 2013
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Handle: RePEc:ter:wpaper:0098
Contact details of provider: Web page: http://wp.comunite.it/

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  1. Paolo Canofari & Giovanni Di Bartolomeo & Giovanni Piersanti, 2015. "Strategic Interactions and Contagion Effects under Monetary Unions," The World Economy, Wiley Blackwell, vol. 38(10), pages 1618-1629, October.
  2. Arghyrou, Michael G. & Kontonikas, Alexandros, 2012. "The EMU sovereign-debt crisis: Fundamentals, expectations and contagion," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 658-677.
  3. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2009. "Government Bond Risk Premiums in the EU revisited: The Impact of the Financial Crisis," CEPR Discussion Papers 7499, C.E.P.R. Discussion Papers.
  4. Canofari Paolo & Marini Giancarlo & Piersanti Giovanni, 2012. "The sustainability of monetary unions. Can the Euro survive?," wp.comunite 0094, Department of Communication, University of Teramo.
  5. Bolton, Patrick & Jeanne, Olivier, 2011. "Sovereign Default Risk and Bank Fragility in Financially Integrated Economies," CEPR Discussion Papers 8358, C.E.P.R. Discussion Papers.
  6. Heather D. Gibson & Stephan G. Hall & George S. Tavlas, 2011. "The Greek financial crisis: growing imbalances and sovereign spreads," Discussion Papers in Economics 11/25, Department of Economics, University of Leicester.
  7. David Haugh & Patrice Ollivaud & David Turner, 2009. "What Drives Sovereign Risk Premiums?: An Analysis of Recent Evidence from the Euro Area," OECD Economics Department Working Papers 718, OECD Publishing.
  8. Joshua Aizenman & Michael M. Hutchison & Yothin Jinjarak, 2011. "What is the Risk of European Sovereign Debt Defaults? Fiscal Space, CDS Spreads and Market Pricing of Risk," NBER Working Papers 17407, National Bureau of Economic Research, Inc.
  9. Bertrand Candelon & Amadou N. R. Sy & Rabah Arezki, 2011. "Sovereign Rating News and Financial Markets Spillovers; Evidence from the European Debt Crisis," IMF Working Papers 11/68, International Monetary Fund.
  10. Favero, Carlo A. & Missale, Alessandro, 2011. "Sovereign spreads in the Euro area: Which prospects for a Eurobond?," CEPR Discussion Papers 8637, C.E.P.R. Discussion Papers.
  11. Wolfram Berger & Helmut Wagner, 2002. "Spreading Currency Crises; The Role of Economic Interdependence," IMF Working Papers 02/144, International Monetary Fund.
  12. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2011. "Causality and contagion in peripheral EMU public debt markets: a dynamic approach," IREA Working Papers 201116, University of Barcelona, Research Institute of Applied Economics, revised Sep 2011.
  13. Miguel A. Segoviano Basurto & Carlos Caceres & Vincenzo Guzzo, 2010. "Sovereign Spreads; Global Risk Aversion, Contagion or Fundamentals?," IMF Working Papers 10/120, International Monetary Fund.
  14. Krause, Stefan & Méndez, Fabio, 2008. "Institutions, arrangements and preferences for inflation stability: Evidence and lessons from a panel data analysis," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 282-307, March.
  15. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126, May.
  16. Hui, Cho-Hoi & Chung, Tsz-Kin, 2011. "Crash risk of the euro in the sovereign debt crisis of 2009-2010," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2945-2955, November.
  17. Borgy, V. & Laubach, T. & Mésonnier, J-S. & Renne, J-P., 2011. "Fiscal Sustainability, Default Risk and Euro Area Sovereign Bond Spreads Markets," Working papers 350, Banque de France.
  18. Metiu, Norbert, 2012. "Sovereign risk contagion in the Eurozone," Economics Letters, Elsevier, vol. 117(1), pages 35-38.
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