Please use this identifier to cite or link to this item: https://hdl.handle.net/20.500.14279/14696
Title: ECB policy and Eurozone fragility: Was de grauwe right?
Authors: Saka, Orkun 
Fuertes, Ana Maria 
Kalotychou, Elena 
Major Field of Science: Social Sciences
Field Category: Economics and Business
Keywords: European central bank;Eurozone fragility;Outright monetary transactions;Self-fulfilling dynamics;Sovereign debt
Issue Date: 1-Jun-2015
Source: Journal of International Money and Finance, 2015, vol. 54, pp. 168-185.
Volume: 54
Start page: 168
End page: 185
Journal: Journal of International Money and Finance 
Abstract: Paul De Grauwe's Eurozone fragility hypothesis states that sovereign debt markets in a monetary union without a lender-of-last-resort are vulnerable to self-fulfilling dynamics fuelled by pessimistic investor sentiment that can trigger default. We test this contention by applying an eclectic methodology to a two-year window around Mario Draghi's "whatever-it-takes" pledge that can be understood as the implicit announcement of the Outright Monetary Transactions (OMT) program. A principal components analysis reveals that the perceived commonality in default risk among peripheral and core Eurozone sovereigns increased after the announcement. An event study reveals significant pre-announcement news transmission from Spain to Italy, France, Belgium and Austria that clearly dissipates post-announcement. Country-specific regressions of CDS spreads on systematic risk factors reveal frequent days of large adverse shocks affecting simultaneously those five Eurozone countries, but only during the pre-announcement period. Altogether these findings support the fragility hypothesis and endorse the OMT program.
URI: https://hdl.handle.net/20.500.14279/14696
ISSN: 02615606
DOI: 10.1016/j.jimonfin.2015.03.002
Rights: © Elsevier
Attribution-NonCommercial-NoDerivs 3.0 United States
Type: Article
Affiliation : City University London 
Publication Type: Peer Reviewed
Appears in Collections:Άρθρα/Articles

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