Sovereign spreads in the Euro area: Cross border transmission and macroeconomic implications

Saleem Bahaj

Journal of Monetary Economics, 2020, vol. 110, issue C, 116-135

Abstract: Large movements in sovereign spreads were at the heart of the euro crisis. This paper builds a new high-frequency narrative dataset of country specific events in the crisis period to identify shocks to sovereign spreads that are orthogonal to the economy. It finds that an increase in sovereign spreads has a contractionary macroeconomic impact with transmission running through a deterioration in private financial conditions. Moreover, the market reactions to foreign events explains a meaningful share of the variation in a sovereign’s cost of borrowing during the crisis.

Keywords: Sovereign risk passthrough; High frequency identification; Contagion (search for similar items in EconPapers)
JEL-codes: E44 E65 F42 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:110:y:2020:i:c:p:116-135

DOI: 10.1016/j.jmoneco.2019.01.006

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