The Greek financial crisis: Growing imbalances and sovereign spreads

Heather Gibson, Stephen Hall and George Tavlas

Journal of International Money and Finance, 2012, vol. 31, issue 3, 498-516

Abstract: We discuss the origins of the Greek financial crisis as manifested in the growing fiscal and current-account deficits since euro-area entry in 2001. We then extend a model typically used to explain risk premia to assess the extent to which credit ratings captured these premia. Next, we estimate a cointegrating relationship between spreads and their long-term fundamental determinants and compare the spreads predicted by this estimated relationship with actual spreads. We find that spreads were significantly below what would be predicted by fundamentals from end-2004 up to the middle of 2005; by contrast, since May 2010, actual spreads have exceeded predicted spreads by some 400 basis points.

Keywords: Greek financial crisis; Sovereign spreads (search for similar items in EconPapers)
JEL-codes: E63 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (80)

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Working Paper: The Greek financial crisis: growing imbalances and sovereign spreads (2011)
Working Paper: The Greek financial crisis: growing imbalances and sovereign spreads (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:3:p:498-516

DOI: 10.1016/j.jimonfin.2011.10.009

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