Contagion in the European Sovereign Debt Crisis

Brent Glover and Seth Richards-Shubik ()

No 20567, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use a network model of credit risk to measure market expectations of the potential spillovers from a sovereign default. Specifically, we develop an empirical model, based on the recent theoretical literature on contagion in financial networks, and estimate it with data on sovereign credit default swap spreads and the detailed structure of financial linkages among thirteen European sovereigns from 2005 to 2011. Simulations from the estimated model show that a sovereign default generates only small spillovers to other sovereigns. These results imply that credit markets do not demand a significant premium for the interconnectedness of sovereign debt in Europe.

JEL-codes: D85 F34 F36 G01 L14 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk and nep-net
Note: CF IFM
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Citations: View citations in EconPapers (21)

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