 Transmission of sovereign risk in the Euro crisisFilippo Brutti and Philip Sauré Journal of International Economics, 2015, vol. 97, issue 2, 231-248 Abstract: We assess the role of financial linkages for the transmission of sovereign risk in the Euro crisis. Building on the narrative approach by Romer and Romer (1989, 2010) and augmented by Mertens and Ravn (2013), we use financial news to identify structural shocks in a vector autoregressive model of daily sovereign CDS premia for eleven European countries. To estimate how these shocks transmit across borders, we use data on cross-country bank exposures to sovereign debt. Our results indicate that cross-border financial exposures constitute important transmission channels: a reduction of exposure to overall Greek debt by one standard deviation is associated with a reduction in the response of the sovereign CDS to a shock to Greek sovereign risk by about three quarter in the average country. Decomposing these effects, we find that exposures to sovereign debt constitute significant transmission channels, while we find no robust support for transmission through bank-to-bank lending. Keywords: Cross-country transmission; Sovereign risk; Financial linkages; Euro crisis narrative approach (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:97:y:2015:i:2:p:231-248 DOI: 10.1016/j.jinteco.2015.03.009 Access Statistics for this article Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés More articles in Journal of International Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.