An investigation into feedback and spatial relationships between banks’ share prices and sovereign bond spreads during the euro crisis |
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Institution: | 1. Bank of Greece, Greece;2. University of Leicester, U.K., Bank of Greece, Greece, and University of Pretoria, South Africa;3. Bank of Greece, Greece, and Hoover Institution, Stanford University, USA |
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Abstract: | We examine (1) spillover effects between euro-area sovereigns and banking systems within national jurisdictions and (2) cross-country spillovers among ten countries during the euro-area crisis. We find that cross-country spillovers substantially amplify the doom loops between the sovereign and banking sectors. We also provide a test that supports the hypothesis that cross-country spillovers among southern-euro-area countries were of a different order from the spillovers among northern-euro-area countries. Our results also imply that, if shocks are idiosyncratic, spillover effects may help in reducing the impact for northern countries. |
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Keywords: | Euro area crisis doom loops cross-country spillovers spatial estimation |
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