Financial Contagion and the European Debt Crisis
34 Pages Posted: 1 Sep 2011
Date Written: August 31, 2011
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: Suggested Citation