It’s not time to make a change: sovereign fragility and the corporate credit risk

Fabio Fornari and Andrea Zaghini

No 2740, Working Paper Series from European Central Bank

Abstract: Relying on a perspective borrowed from monetary policy announcements and introducing an econometric twist in the traditional event study analysis, we document the existence of an "event risk transfer", namely a significant credit risk transmission from the sovereign to the corporate sector after a sovereign rating downgrade. We find that after the delivery of the downgrade, corporate CDS spreads rise by 36% per annum and there is a widespread contagion across countries, in particular among those which were most exposed to the sovereign debt crisis. This effect exists on top of the standard relation between sovereign and corporate credit risk. JEL Classification: C21, G12, G14

Keywords: credit default swaps; credit rating; sovereign risk spillover (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-rmg
Note: 495651
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: It’s not time to make a change: Sovereign fragility and the corporate credit risk (2022)
Working Paper: It's not time to make a change: Sovereign fragility and the corporate credit risk (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222740

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