Spillovers among sovereign debt markets: identification by absolute magnitude restrictions

Roberto De Santis () and Srečko Zimic

No 2055, Working Paper Series from European Central Bank

Abstract: This paper studies spillovers among US and European sovereign yields. We provide a new method based on absolute magnitude restrictions of the impact matrix to identify the countries that were the main sources of spillovers. Despite the large size of shocks from euro area stressed countries, connectedness among sovereign yields declined between 2008 and 2012 due to financial fragmentation, particularly between countries with more divergent business and fiscal cycles. We show that none of the sovereign yields are insulated from foreign shocks and that shocks to the Greek bond market in 2010 explained 20-30% of the variance of sovereign yields in stressed countries, while in 2011-2012 Italy (not Spain) was the source of systemic risk. JEL Classification: C3, G2

Keywords: connectedness; contagion; fragmentation; sovereign risk; spillovers; SVAR identification (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-eec
Note: 185689
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172055

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