Stability of sovereign risk in the Eurozone through the Lyapunov Exponent

Christian Espinosa-Méndez and Juan Gorigoitia

No 36, Working Papers from Facultad de Economía y Empresa, Universidad Diego Portales

Abstract: This article explores whether the Lyapunov exponent provides useful information on the changes in sovereign risk in the Eurozone. In the context of the financial crisis that started in 2007, we find a close relationship between the changes in sovereign risk and the Lyapunov exponent. Then, using the Hurst and Lyapunov exponents, we find evidence suggesting that countries that implemented economic policy measures more quickly faced lower variations in their sovereign risk relative to other Eurozone countries.

Date: 2012-10
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