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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