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Has the Grexit news affected euro area financial markets?

Wildmer Daniel Gregori and Agnese Sacchi ()

No 2017-13, Working Papers from Joint Research Centre, European Commission (Ispra site)

Abstract: This paper investigates whether rumours about Greek exit from the euro area have spilled over into other European countries’ sovereign bond yields. Our empirical analysis is based on more than 64,000 daily news items on Grexit between December 2014 and October 2015. We build a Grexit intensity index based on the daily change of Grexit news items to capture policy uncertainty about the euro area break-up. Our results suggest that higher intensity of Grexit news drives up government bond yields in peripheral countries (Italy, Portugal, and Spain, excluding Ireland), but that there are no effects on core countries. The asymmetric reaction to Grexit news seems to support a more general ‘market-based fiscal disciplining’ mechanism at work in monetary unions.

Keywords: Grexit; financial markets; government bond; news; euro area; GARCH (search for similar items in EconPapers)
JEL-codes: E43 E62 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
Date: 2017-12
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Published by Publications office of the European Union, 2017

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http://publications.jrc.ec.europa.eu/repository/bi ... wp_dec17_updated.pdf (application/pdf)

Related works:
Working Paper: Has the Grexit news spilled over into euro area financial markets? The role of domestic political leaders, supranational executives and institutions (2016) Downloads
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