TITLE:
Contagion of Sovereign Debt in the Eurozone
AUTHORS:
Astrid Ayala, Szabolcs Blazsek
KEYWORDS:
European Monetary Union; Sovereign Debt; Fiscal Crisis; Contagion and Interdependence; Efficient Importance Sampling
JOURNAL NAME:
Theoretical Economics Letters,
Vol.4 No.1,
February
18,
2014
ABSTRACT: This study reports
contagion and interdependence of quarterly debt to gross domestic product (GDP)
among the member states of the Eurozone over the period 2000 Q4 to 2012 Q1. We
test for contagion and interdependence in two steps. First, we define an
indicator variable of increasing debt to GDP for each country during the period
following the United States financial crisis, by using unit root tests
incorporating structural changes and breaking trend regressions. Second, the
indicator variable is included in the latent-factor panel data model to
separate contagion and interdependence of debt to GDP among Eurozone member
states. Results show significant and country-dependent contagion and
interdependence effects of debt to GDP in the Eurozone.