The EMU sovereign-debt crisis: Fundamentals, expectations and contagion

Michael Arghyrou and Alexandros Kontonikas ()

No E2010/9, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We offer a detailed empirical investigation of the European sovereign debt crisis based on the theoretical model by Arghyrou and Tsoukalas (2010). We find evidence of a marked shift in market pricing behaviour from a 'convergence-trade' model before August 2007 to one driven by macro-fundamentals and international risk thereafter. The majority of EMU countries have experienced contagion from Greece. There is no evidence of significant speculation effects originating from CDS markets. Finally, the escalation of the Greek debt crisis since November 2009 is confirmed as the result of an unfavourable shift in country specific market expectations. Our findings highlight the necessity of structural, competitiveness-inducing reforms in periphery EMU countries and institutional reforms at the EMU level enhancing intra-EMU economic monitoring and policy co-ordination.

Keywords: euro-area; crisis; spreads; fundamentals; expectations; contagion; speculation (search for similar items in EconPapers)
JEL-codes: E43 E44 F30 G01 G12 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2010-09
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Related works:
Journal Article: The EMU sovereign-debt crisis: Fundamentals, expectations and contagion (2012)
Working Paper: The EMU sovereign-debt crisis: fundamentals, expectations and contagion (2011)
Working Paper: The EMU sovereign-debt crisis: Fundamentals, expectations and contagion (2011)
Working Paper: The EMU sovereign-debt crisis: Fundamentals, expectations and contagion (2010)
Working Paper: The EMU sovereign-debt crisis: Fundamentals, expectations and contagion (2010)
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