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Fragmentation in the European Monetary Union: Is it really over?

Bertrand Candelon (), Angelo Luisi () and Francesco Roccazzella

No GRU_2021_016, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: Sovereign bond market fragmentation represents one of the major challenges European authorities have had to tackle since the outburst of the euro area debt crisis in 2010. By investigating the inter-country shock transmission through a new methodology that reconciles Factor and Global Vector Autoregressive models, we first show that fragmentation risk well preceded the sovereign debt crisis outburst. Most importantly, by analyzing the recent period, we document a rise in fragmentation risk in the euro area during the COVID pandemic. This rise, connected to the pressure on public debts and deficits due to the pandemic period, questions the European integration process and calls for early measures to avoid a new sovereign debt crisis.

Keywords: Euro Area; Sovereign bond; Fragmentation; COVID (search for similar items in EconPapers)
JEL-codes: F36 F37 G12 H63 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2021-05-14
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232021-016%20Candelon.pdf (application/pdf)

Related works:
Journal Article: Fragmentation in the European Monetary Union: Is it really over? (2022) Downloads
Working Paper: Fragmentation in the European Monetary Union: Is it really over? (2022)
Working Paper: Fragmentation in the European Monetary Union: Is it really over? (2021) Downloads
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