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Money Market Integration and Sovereign CDS Spreads Dynamics in the New EU States

Petar Chobanov (), Amine Lahiani and Nikolay Nenovsky ()

No wp1002, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: When the first phase of the crisis focused primarily on the interbank market volatility, the second phase spread on the instability of public finance. Although the overall stance of public finances of the new members is better than the old member countries, the differences within the new group are significant (from the performer Estonia to the laggard Hungary). Sovereign CDS spreads have become major variables focused on risks and expectations about the fiscal situation of different countries. In the paper we investigate, first, whether there is a link in the new member states (NMS) between the expectations about the condition of their public finances and the dynamics of money markets,including integration of national money markets with the euro area.....Our study confirm that the strong link between monetary and public finance risk as apart of total systemic risk increase during the crisis especially for currency boards regimes, when the link becomes stronger and pronounced. For the inflation targeting countries the link became weaker and less pronounced.

Keywords: money markets; sovereign CDS spreads; EU enlargement; monetary regimes; financial crisis (search for similar items in EconPapers)
JEL-codes: E43 F31 F34 G10 P20 (search for similar items in EconPapers)
Pages: pages
Date: 2010-10-01
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-tra
References: View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2010-1002

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