Deciphering financial contagion in the euro area during the crisis

Albi Tola and Sébastien Wälti
Authors registered in the RePEc Author Service: Sébastien Waelti

The Quarterly Review of Economics and Finance, 2015, vol. 55, issue C, 108-123

Abstract: Financial market interdependence has been at the epicenter of the crisis in the euro area. This paper tests for the existence of financial contagion during this crisis, defined as the international transmission of country-specific shocks beyond the normal channels of financial interdependence. Since contagion relates purely to country-specific shocks, we combine the standard contagion test of Favero and Giavazzi (2002) with a narrative approach to separate out global and euro area shocks from country-specific shocks. Financial contagion has been widespread during the crisis in the euro area. Three quarters of country-specific shocks are contagious over the whole sample period. But the proportion of contagious country-specific shocks has fallen markedly after the “whatever it takes” announcement in July 2012.

Keywords: Contagion; Sovereign bond; Euro; Financial crisis; Narrative approach (search for similar items in EconPapers)
JEL-codes: E44 F34 F36 G01 G12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Deciphering financial contagion in the euro area during the crisis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:55:y:2015:i:c:p:108-123

DOI: 10.1016/j.qref.2014.09.009

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