The EMU sovereign-debt crisis: Fundamentals, expectations and contagion

Arbeitspapier

We offer a detailed empirical investigation of the European sovereign debt crisis based on the theoretical model by Arghyrou and Tsoukalas (2010). We find evidence of a marked shift in market pricing behaviour from a 'convergence-trade' model before August 2007 to one driven by macro-fundamentals and international risk thereafter. The majority of EMU countries have experienced contagion from Greece. There is no evidence of significant speculation effects originating from CDS markets. Finally, the escalation of the Greek debt crisis since November 2009 is confirmed as the result of an unfavourable shift in country specific market expectations. Our findings highlight the necessity of structural, competitiveness-inducing reforms in periphery EMU countries and institutional reforms at the EMU level enhancing intra-EMU economic monitoring and policy co-ordination.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Cardiff Economics Working Papers ; No. E2010/9

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; International Finance: General ; Financial Crises ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: euro-area ; crisis ; spreads ; fundamentals ; expectations ; contagion ; speculation ; Öffentliche Schulden ; Finanzmarktkrise ; Ansteckungseffekt ; Währungsunion ; Europäische Wirtschafts- und Währungsunion

Contributors, Location and Time

• Event: Geistige Schöpfung
• (who): Arghyrou, Michael G. ; Kontonikas, Alexandros
• Event: Veröffentlichung
• (who): Cardiff University, Cardiff Business School
• (where): Cardiff
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/65760
• Last update: 20.09.2024, 8:22 AM CEST