Real effects of sovereign bond market spillovers in the euro area

Niklas Gadatsch

No 01/2015, Working Papers from German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung

Abstract: This paper develops a small open economy model to investigate the impact of rising sovereign bond market spreads on the real economy. One key element of the model is a "sovereign risk channel" through which tensions in the sovereign bond market tend to spill over into private credit markets. The model is estimated with Bayesian methods and data for "high-spread" countries in the euro area. It turns out that spread shocks during the Euro crisis had a negative effect on real GDP growth in these countries, up to 0.8 percentage points (PP) Portugal and Ireland, 0.3 PP in Italy and 0.2 PP in Spain.

Keywords: Small open economy; Business cycles; Sovereign risk premium; DSGE modeling (search for similar items in EconPapers)
JEL-codes: E32 E43 F41 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-dge, nep-eec, nep-fdg, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:svrwwp:012015

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