Disentangling Contagion Among Sovereign CDS Spreads During the European Debt Crisis

Content Provider	Semantic Scholar
Author	Broto, Carmen Pérez-Quirós, Gabriel
Copyright Year	2013
Abstract	During the last crisis, developed economies' sovereign credit default swap (hereafter CDS) premia have gained in importance as a tool for approximating credit risk. In this paper, we fit a dynamic factor model to decompose the sovereign CDS spreads of ten OECD economies into three components: a common factor, a second factor driven by European peripheral countries and an idiosyncratic component. We use this decomposition to propose a novel methodology based on the real-time estimates of the model to characterize contagion among the ten series. Our procedure allows the country that triggers contagion in each period, which can be any peripheral economy, to be disentangled. According to our findings, since the onset of the sovereign debt crisis, contagion has played a non-negligible role in the European peripheral countries, which confirms the existence of significant financial linkages between these economies.
Starting Page	165
Ending Page	179
Page Count	15
File Format	PDF HTM / HTML
DOI	10.2139/ssrn.2341518
Volume Number	32
Alternate Webpage(s)	https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/13/Fich/dt1314e.pdf
Alternate Webpage(s)	http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/13/Fich/dt1314e.pdf
Alternate Webpage(s)	http://isiarticles.com/bundles/Article/pre/pdf/45415.pdf
Alternate Webpage(s)	https://doi.org/10.2139/ssrn.2341518
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article