Banks and Sovereigns: Did Adversity Bring Them Closer?

Mardi H. Dungey, Thomas Flavin and Lisa Sheenan

No 2020/05, QBS Working Paper Series from Queen's University Belfast, Queen's Business School

Abstract: We analyse the stability of the cross-market shock transmission mechanism between banks and sovereign bonds during the Eurozone sovereign debt crisis for crisis-hit periphery countries and Germany. We also examine the shock propagation of banking shocks and sovereign bond shocks between domestic and external markets. Using a Markov-switching framework, we find strong evidence of bilateral contagion between banks and sovereign bonds and also between domestic and external banking sectors. Sovereign bond markets are different. An external shock only produces contagious effects in Greece, who were largely dependent on external aid. For all the others, external shocks lead to decoupling as investors became increasingly discerning in their perception of the debt instruments issued by different Eurozone states

JEL-codes: G01 G10 G21 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Banks and Sovereigns: Did adversity bring them closer? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:qmsrps:202005

DOI: 10.2139/ssrn.3627639

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