Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity

Kalemli‐Özcan, Ṣebnem; Papaioannou, Elias; Peydró, José‐Luis

doi:10.1111/jofi.12025

Cited by 273 publications

(113 citation statements)

References 151 publications

(245 reference statements)

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“…Second, the empirical findings point to fundamentals-based contagion: In tranquil times, sovereign credit risk in two countries that are more financially integrated in terms of their banks' foreign claims seems to be unaffected [column (IV)] or tends to co-move less [column (III)]. This supports the notion that this type of financial linkage enhances risk diversification (Kalemli-Ozcan et al 2013). When contagion occurs, however, stronger linkages are associated with stronger co-movement in sovereign credit risk [column (IV) only].…”

Section: Separating Interdependence From Channels Of Contagionmentioning

confidence: 53%

Sovereign Credit Risk Co‐Movements in the Eurozone: Simple Interdependence or Contagion?

Buchholz

Tonzer

2016

International Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractSince the onset of the eurozone sovereign debt crisis, credit risk spreads in Europe have diverged. Despite this divergence, credit risk comoves strongly within certain country groups such as the eurozone periphery. We seek to answer what the determinants of the observed pattern of credit risk co-movements are and whether and during which periods sovereign debt markets have been subject to contagion.We proceed in three steps. First, we apply dynamic conditional correlations from a multivariate GARCH model to sovereign CDS spreads of 17 countries over the period 2008 to 2012. Second, we separate periods of simple interdependence fromcontagion. Third, we analyze the determinants behind credit risk co-movements and the role of contagion using regression analysis. Our results reveal a high degree of co-movements in sovereign credit risk, especially for eurozone countries during the sovereign debt crisis. We find strong evidence for both fundamentals and nonfundamentals based contagion. Similarities in economic fundamentals, cross-country linkages in banking and common market sentiment play a significant role.Keywords: Sovereign debt crisis, financial contagion, banking market integration JEL Classification: F30, F65, G01, G15 * We are grateful to Claudia Buch and Elena Carletti for continuous advice and encouragement. Furthermore, we would like to thank Mascia Bedendo, Martin Biewen, Elena Dumitrescu, Carlo Favero, Peter Hansen, Massimiliano Marcellino, Giovanni Piersanti, Esteban Prieto and Saverio Simonelli for many helpful comments as well as the Bank for International Settlements for kindly providing data. The paper has also benefited from comments by seminar participants at the This divergence can be explained by worsened fiscal positions following government interventions in the banking sector during the financial crisis as well as fiscal stimulus packages. At the same time, a high degree of financial integration in eurozone countries due to cross-border activities of banks and the existence of a common currency gave rise to interdependencies. In how far these interdependencies translate into volatile market reactions across countries and cause co-movements in sovereign credit risk is, however, hardly understood.Our objective is to take a closer look at the pattern of sovereign credit risk across European countries. To do so, we ask the following questions: First, does sovereign credit risk comove across ...

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Section: Separating Interdependence From Channels Of Contagionmentioning

confidence: 53%

Sovereign Credit Risk Co‐Movements in the Eurozone: Simple Interdependence or Contagion?

Buchholz

Tonzer

2016

International Finance

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“…Our panel data econometric approach extends over the basic setup in equation 1 and draws on Okubo (2011), Mink et al (2012), Kalemli-Ozcan et al (2013b) and Caporale et al (2015), as discussed below.…”

Section: Empirical Methodologymentioning

confidence: 99%

“…The increase in time-series data availability and advances in measurement have increased the scope for empirical research using time-varying measures of synchronicity, including, most popularly, those based on amplitude (Giannone and Reichlin, 2010;Kalemli-Ozcan et al, 2013a, 2013bCaporale et al, 2015). Mink et al (2012) note, for instance, that perfect correlation of cycles does not mean that the common monetary policy suits all countries equally well if amplitude of cycles differs (see their Figure 3, p. 222).…”

Section: Literature Reviewmentioning

confidence: 99%

“…To address possible endogeneity, we take several steps. First, following Artis and Okubo (2011) and Kalemli-Ozcan et al (2013b), specifications are considered as set out in equations 2 and 3. The dynamic specifications, which involve a single lag of exogenous regressors, exploit the low degree of persistence of synchronization measures, which may at least partially address endogeneity in the form of reverse causation.…”

Section: Endogeneitymentioning

confidence: 99%

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Endogeneity Analysis of Output Synchronization in the Current and Prospective EMU

Arestis

Phelps

2015

J of Common Market Studies

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“…But what do we know about the effects of opening goods and financial markets to foreign competition on cyclical fluctuations? There has been considerable empirical work over the last 20 years studying the relationship between trade, finance and synchronicity of cyclical fluctuations (see, for example, Canova and Dellas, 1993;Canova and Marrinan, 1998;Imbs, 2004Imbs, , 2006Kose et al, 2009;Kalemli-Ozcan et al, 2012). The conclusions the literature has reached are somewhat controversial and depend on the variables considered and the countries involved.…”

Section: What Is the Role Of Trade And Financial Links?mentioning

confidence: 99%

Has the Euro-Mediterranean Partnership Affected Mediterranean Business Cycles?

Canova

Schlaepfer

2013

J. Appl. Econ.

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Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity

Abstract: 4Executive summary 5

Cited by 273 publications

References 151 publications

Sovereign Credit Risk Co‐Movements in the Eurozone: Simple Interdependence or Contagion?

Sovereign Credit Risk Co‐Movements in the Eurozone: Simple Interdependence or Contagion?

Endogeneity Analysis of Output Synchronization in the Current and Prospective EMU

Has the Euro-Mediterranean Partnership Affected Mediterranean Business Cycles?

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