Sovereigns and banks in the euro area: A tale of two crises

dc.contributor.authorGómez-Puig, Marta
dc.contributor.authorSosvilla-Rivero, Simón
dc.contributor.authorSingh, Manish K.
dc.description.abstractThis study attempts to identify and trace inter-linkages between sovereign and banking risk in the euro area. To this end, we use an indicator of banking risk in each country based on the Contingent Claim Analysis literature, and 10-year government yield spreads over Germany as a measure of sovereign risk. We apply a dynamic approach to testing for Granger causality between the two measures of risk in 10 euro area countries, allowing us to check for contagion in the form of a significant and abrupt increase in short-run causal linkages. The empirical results indicate that episodes of contagion vary considerably in both directions over time and within the different EMU countries. Significantly, we find that causal linkages tend to strengthen particularly at the time of major financial crises. The empirical evidence suggests the presence of contagion, mainly from banks to sovereigns.
dc.description.departmentDepto. de Análisis Económico y Economía Cuantitativa
dc.description.facultyFac. de Ciencias Económicas y Empresariales
dc.description.sponsorshipGovernment of Spain
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dc.publisherAsociación Española de Economía y Finanzas Internacionales
dc.relation.ispartofseriesWorking Papers on International Economics and Finance
dc.rights.accessRightsopen access
dc.subject.keywordSovereign debt crisis
dc.subject.keywordBanking crisis
dc.subject.keywordTime-varying approach
dc.subject.keywordEuro area.
dc.subject.ucmBancos y cajas
dc.subject.ucmCrisis económicas
dc.subject.ucmEconometría (Economía)
dc.subject.ucmEconomía internacional
dc.subject.ucmEconomía pública
dc.subject.ucmIntegración económica
dc.subject.unesco5307.06 Fluctuaciones Económicas
dc.subject.unesco5302 Econometría
dc.subject.unesco5310 Economía Internacional
dc.subject.unesco5309.02 Integración Económica
dc.titleSovereigns and banks in the euro area: A tale of two crises
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