Was the European sovereign crisis self-fulfilling? Empirical evidence about the drivers of market sentiments

Catherine Bruneau (), Anne-Laure Delatte and Julien Fouquau
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Catherine Bruneau: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: We investigate the presence of self-fulfilling dynamics during the European sovereign crisis in the light of a theoretical model that we bring to the data. Our empirical framework allows us to empirically test the presence of self-fulfilling dynamics and to identify what may have driven the market sentiment during this crisis. To do so we estimate the probability of default of five European "peripheral" countries during January 2006 to September 2011 with a panel smooth threshold regression. Our estimation results suggest that (1) both the fundamentals and "animal spirit" ignited the European sovereign crisis; (2) we isolate the risk indicator through which investors' belief coordinate.

Keywords: European sovereign crisis; Panel smooth threshold regression models; Multiple equilibria; Self-fulfilling crisis; Credit default swap (search for similar items in EconPapers)
Date: 2014-12
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Citations: View citations in EconPapers (10)

Published in Journal of Macroeconomics, 2014, Volume 42, pp.38-51. ⟨10.1016/j.jmacro.2014.07.001⟩

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Related works:
Journal Article: Was the European sovereign crisis self-fulfilling? Empirical evidence about the drivers of market sentiments (2014)
Working Paper: Was the European sovereign crisis self-fulfilling? Empirical evidence about the drivers of market sentiments (2014)
Working Paper: Is the European sovereign crisis self-fulfilling? Empirical evidence about the drivers of market sentiments (2014)
Working Paper: Is the European sovereign crisis self-fulfilling ? Empirical evidence about the drivers of market sentiments (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01154350

DOI: 10.1016/j.jmacro.2014.07.001

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