Financial market linkages and the sovereign debt crisis

Susana Campos-Martins and Cristina Amado

Journal of International Money and Finance, 2022, vol. 123, issue C

Abstract: We develop a novel approach to investigate the presence of financial contagion during the European sovereign debt crisis. The novelty lies in modelling bond yield market comovements allowing the individual long-run variances to be time-dependent and the correlations to change smoothly between two extreme states according to time and observable financial variables. The new model has the flexibility to discern between long-run and short-run contagion effects on the basis of the variable used as indicator for the time-variation in correlations. The main results provide evidence of long-run contagion effects across peripheral countries following the more acute phase of the sovereign crisis.

Keywords: Financial contagion; European sovereign debt crisis; Multivariate GARCH model; Dynamic correlations; Multiplicative decomposition of volatility (search for similar items in EconPapers)
JEL-codes: C32 C58 G01 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:123:y:2022:i:c:s0261560621002473

DOI: 10.1016/j.jimonfin.2021.102596

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