Contagion in the European Sovereign Debt Crisis

49 Pages Posted: 14 Oct 2014 Last revised: 14 Mar 2021

See all articles by Brent Glover

Brent Glover

Carnegie Mellon University - David A. Tepper School of Business

Seth Richards-Shubik

Lehigh University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 2014

Abstract

We use a network model of credit risk to measure market expectations of the potential spillovers from a sovereign default. Specifically, we develop an empirical model, based on the recent theoretical literature on contagion in financial networks, and estimate it with data on sovereign credit default swap spreads and the detailed structure of financial linkages among thirteen European sovereigns from 2005 to 2011. Simulations from the estimated model show that a sovereign default generates only small spillovers to other sovereigns. These results imply that credit markets do not demand a significant premium for the interconnectedness of sovereign debt in Europe.

Suggested Citation

Glover, Brent and Richards-Shubik, Seth, Contagion in the European Sovereign Debt Crisis (October 2014). NBER Working Paper No. w20567, Available at SSRN: https://ssrn.com/abstract=2510064

Brent Glover (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

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Pittsburgh, PA 15213-3890
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Seth Richards-Shubik

Lehigh University - Department of Economics ( email )

620 Taylor Street
Bethlehem, PA 18015
United States

HOME PAGE: http://www.lehigh.edu/~ser315

National Bureau of Economic Research (NBER) ( email )

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