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Contagion from the crises in the Euro-zone: where, when and why?

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journal contribution
posted on 08.04.2019, 08:51 by Eric Pentecost, Wenti Du, Graham Bird, Thomas Willett
© 2019, © 2019 Informa UK Limited, trading as Taylor & Francis Group. The prevalence of contagion between the Euro-zone countries and other European countries since the Greek crisis of 2009 is now well–known, but the factors that influence the pattern of this contagion are not well understood. We investigate this question both within Europe and beyond to the USA and Japan, using an asymmetric M-GARCH model that focuses on extreme values of the risk premia on government bonds. We compare these extreme values with news of major events and find that they are highly correlated. We find a different pattern of contagion emanating from Ireland compared to the other crisis countries of Greece, Italy, Portugal and Spain. We also examine the factors that have made countries vulnerable to contagion and find that financial factors are more important than trade ones. However, intra-Euro-zone trade has also been a significant factor between the major Euro-zone economies. There is little evidence that global factors affect contagion between EU member states, but some evidence that nominal exchange rate movements offer a degree of insulation from contagion for the non-Euro zone states.

History

School

  • Business and Economics

Department

  • Economics

Published in

The European Journal of Finance

Volume

25

Issue

14

Pages

1309 - 1327

Citation

PENTECOST, E.J. ... et al., 2019. Contagion from the crises in the Euro-zone: where, when and why? European Journal of Finance, 25 (14), pp.1309-1327.

Publisher

© Taylor and Francis

Version

AM (Accepted Manuscript)

Publisher statement

This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 14 March 2019, available online: http://www.tandfonline.com/10.1080/1351847X.2019.1589552.

Acceptance date

26/02/2019

Publication date

2019-03-14

ISSN

1351-847X

eISSN

1466-4364

Language

en

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