Financial Crisis and Domino Effect

Pedro Bação, João Maia Domingues and António Portugal Duarte
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João Maia Domingues: University of Coimbra

Chapter 11 in Managing Structural Changes - Trends and Requirements, 2012, vol. 1, pp 199-213 from Institute of Economic Sciences

Abstract: This chapter analyses the spread of the sovereign debt crisis in the Eurozone. To this end we employ three approaches. The first approach employs univariate autoregressive models. These allow the identification of shocks to government bond yields in Portugal, Italy, Ireland, Greece, Spain and Germany. The timing of the shocks is then analysed in search for evidence of a domino effect. The second approach applies the same identification procedure to VAR models estimated for each country. Finally, the third approach computes Granger causality tests between government bond yields in those countries. The results from the first two approaches do not appear to favour the contagion hypothesis. Nevertheless, the third approach, when bivariate VAR models are used, suggests that there may be interdependence between Greece, Ireland and Portugal, which might have justified European intervention to stop the crisis from spreading.

Keywords: Contagion; financial crisis; Granger causality; identification of shocks; sovereign debt crisis (search for similar items in EconPapers)
Date: 2012
ISBN: 978-972-9344-06-0
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Citations: View citations in EconPapers (1)

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