Financial Contagion and the European Debt Crisis

34 Pages Posted: 1 Sep 2011

See all articles by Sebastian Missio

Sebastian Missio

Ludwig Maximilian University of Munich (LMU)

Sebastian Watzka

Ludwig Maximilian University of Munich (LMU)

Date Written: August 31, 2011

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.

Keywords: contagion, DCC, Euro Crisis

JEL Classification: E430, E440, E630

Suggested Citation

Missio, Sebastian and Watzka, Sebastian, Financial Contagion and the European Debt Crisis (August 31, 2011). CESifo Working Paper Series No. 3554, Available at SSRN: https://ssrn.com/abstract=1920642

Sebastian Missio

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Sebastian Watzka (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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