How systemic is Spain for Europe?

Peter Claeys and Bořek Vašíček ()

No 201301, AQR Working Papers from University of Barcelona, Regional Quantitative Analysis Group

Abstract: We use the forecast-error variance decompositions from a VAR with daily sovereign bonds spreads since 2000 to detail the linkages between EU sovereign bond markets and banks over time. Using new summary statistics on the matrix of bilateral linkages, we show Spain is systemic for Europe. Its fiscal problems expose it to trouble in sovereign bond markets of the other Club Med countries, whereas its internationally grown banking sector transmits domestic economic trouble to the rest of Europe. This spillover has substantially increased since the outbreak of the Fiscal Crisis in the Eurozone in May 2010. We develop a real-time indicator to follow the degree of spillover on a daily basis.

Keywords: spillover; contagion; sovereign bond spreads; fiscal policy; Eurozone; financial crisis; sovereign ratings.. JEL classification: G12; C14; E43; E62; G12; H62; H63 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2013-02, Revised 2013-02
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:aqr:wpaper:201301

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