Financial Crisis and Domino Effect

Pedro Bação, João Maia Domingues () and António Portugal Duarte
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João Maia Domingues: Faculty of Economics, University of Coimbra, Portugal

No 2012-10, GEMF Working Papers from GEMF, Faculty of Economics, University of Coimbra

Abstract: This paper analyses the spread of the sovereign debt crisis in the Eurozone. To this end we employ three approaches. The first approach employs univariate autoregressive models. These allow the identification of shocks to government bond yields in Portugal, Italy, Ireland, Greece, Spain and Germany. The timing of the shocks is then analysed in search for evidence of a domino effect. The second approach applies the same identification procedure to VAR models estimated for each country. Finally, the third approach computes Granger causality tests between government bond yields in those countries. The results from the first two approaches do not appear to favor the contagion hypothesis. Nevertheless, the third approach, when bivariate VAR models are used, suggests that there may be interdependence between Greece, Ireland and Portugal, which might have justified European intervention to stop the crisis from spreading.

Keywords: contagion; financial crisis; Granger causality; identification of shocks; sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: E21 F32 F36 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2012-08
New Economics Papers: this item is included in nep-cba and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Chapter: Financial Crisis and Domino Effect (2012)
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