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Financial Contagion and the European Debt Crisis

Author

Listed:
  • Sebastian Missio
  • Sebastian Watzka

Abstract

Since the beginning of 2010, the Euro Area faces a severe sovereign debt crisis, now generally known as the Euro Crisis. While the Euro Crisis has its origin in Greece, problems have now spread to several other European countries as well. Dynamic conditional correlation models (DCC) are estimated in order to assess if contagious effects are identifiable during the Euro Crisis, or if the countries’ problems are instead due to fundamental problems in the affected economies. Our findings show that there is contagion within the Euro Area. Additionally, contagious effects generated by rating announcements are documented. These results are crucial when it comes to choosing the correct measure and timing of policy intervention.

Suggested Citation

  • Sebastian Missio & Sebastian Watzka, 2011. "Financial Contagion and the European Debt Crisis," CESifo Working Paper Series 3554, CESifo.
    • Handle: RePEc:ces:ceswps:_3554
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    References listed on IDEAS

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    More about this item

    Keywords

    contagion; DCC; Euro Crisis;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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