Sovereign Risk and Asset Market Dynamics in the Euro Area
Working Papers from CEPII research center
This paper studies the behavior of euro area asset market co-movements during the period 2010-2014, through the lens of a DSGE model. The economy is a two-country world consisting of a core and a periphery and featuring an international banking sector, international equity markets, home bias in sovereign bond holdings, and sovereign default. The periphery is buffeted by a sovereign risk shock, whose process is estimated from the data. The model accounts successfully for the divergence in core-periphery correlations between stock and sovereign bond returns. The simulation results indicate that the sovereign risk shock explains 50% of the increase in sovereign and loandeposit spreads, and 8% of the decrease in global output during the sovereign debt crisis.
Keywords: Currency Union; International Financial Markets; Sovereign Risk; General Equilibrium (search for similar items in EconPapers)
JEL-codes: F41 F44 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eec and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cii:cepidt:2018-18
Access Statistics for this paper
More papers in Working Papers from CEPII research center Contact information at EDIRC.
Bibliographic data for series maintained by ().