The views expressed in the paper do not necessarily reflect those of the Bank of Italy. We are indebted to Domenico Depalo, Michael Ehrmann, Carlo A. Favero, Eugenio Gaiotti, Giuseppe Grande, Marco Taboga and participants in the Bank of Italy workshop ‘The Sovereign Debt Crisis and the Euro Area’, the 24th conference of the Italian Public Economics Society (SIEP), the 2013 Midwest Finance Association meeting and the Bocconi-CEPR conference on ‘Fiscal Policy and Growth’ for valuable comments and suggestions.
Pure or Wake-up-Call Contagion? Another Look at the EMU Sovereign Debt Crisis†
Article first published online: 19 SEP 2013
© 2013 John Wiley & Sons Ltd
Volume 16, Issue 2, pages 131–160, Summer 2013
How to Cite
Giordano, R., Pericoli, M. and Tommasino, P. (2013), Pure or Wake-up-Call Contagion? Another Look at the EMU Sovereign Debt Crisis. International Finance, 16: 131–160. doi: 10.1111/j.1468-2362.2013.12033.x
- Issue published online: 19 SEP 2013
- Article first published online: 19 SEP 2013
We test whether the sharp increase in sovereign spreads of euro-area countries with respect to Germany after the explosion of the Greek crisis was due to deteriorating macroeconomic and fiscal fundamentals or to some form of financial contagion. Our analysis includes indicators of domestic and external imbalances which were mostly disregarded by previous studies, and distinguishes between investors' increased attention to the variables which ultimately determine the creditworthiness of a sovereign borrower (wake-up-call contagion) and behaviour not linked to fundamentals (pure contagion). We find evidence of wake-up-call contagion but not of pure contagion.