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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Transmission of sovereign risk in the Euro crisis
Organization Unit
Authors
  • Filippo Brutti
  • Philip Saure
Language
  • English
Institution Stiftung der Schweizerischen Nationalbank
Series Name Studienzentrum Gerzensee
Number 12.01
Number of Pages 50
Date 2012
Abstract Text We assess the role of financial linkages in the transmission of sovereign risk in the Euro Crisis. Building on the narrative approach by Romer and Romer (1989), we use financial news to identify structural shocks in a vector autoregressive model of daily sovereign CDS premia for eleven European countries. To estimate how these shocks transmit across borders, we use data on cross-country bank exposures to sovereign debt. Our results indicate that exposure to Greek sovereign debt and the debt of Greek banks constitute important transmission channels. All else being equal, the transmission rate to the country with the greatest exposure to Greece (1.22 percent of GDP) has been roughly 46 percent higher than the rate to the country with the least exposure (0.08 percent of GDP).
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Keywords Cross-country Transmission, Sovereign Risk, Financial Linkages, Euro, , Crisis, Narrative Approach
Additional Information Presentations: 1. Seminar at Study Center Gerzensee, "Transmission of Sovereign Risk in the Euro Area" (joint with Philip Saure). January 2012. 2. XV Workshop in International Economics and Finance, organized by CEPR and hosted by CREi, Barcelona. 1-2 July 2012. Title: Secondary Bond Markets and Sovereign Risk in Times of Crisis: An Empirical Assessment (joint with Philip Saure') 3. Seminar at UNIL, "Transmission of Sovereign Risk in the Euro Area" (joint with Philip Saure). 16 October 2012. 4. Seminar at University of Konstanz, "Transmission of Sovereign Risk in the Euro Area" (joint with Philip Saure). 29 October 2012.