Figure 1.1: Credit risk in sovereign debt markets (CDS, basis points)
The graph plots sovereign CDS premia in basis points for the period January 2008 to September 2012. The series for six selected Eurozone countries (France, Germany, Ireland, Italy, Portugal and Spain) are depicted in the upper left. The series for the group of periph-ery Eurozone countries (Ireland, Italy, Portugal, Spain and Greece) are shown in the upper right. The lower left refers to core Eurozone countries (Austria, Belgium, Finland, France, Germany and the Netherlands) and the lower right to non-Eurozone countries (Denmark, Japan, Norway, Sweden, United Kingdom and United States). Data source: Datastream.
050010001500CDS premia (basis points)
01jan2008 01jul2009 01jan2011 01jul2012
Year
France Germany
Ireland Italy
Portugal Spain
Selected countries
010000200003000040000 Greece
050010001500CDS premia (basis points)
01jan2008 01jul2009 01jan2011 01jul2012
Year
Ireland Italy
Portugal Spain
Greece
Periphery eurozone
0100200300400CDS premia (basis points)
01jan2008 01jul2009 01jan2011 01jul2012
Year
Austria Belgium
Finland France
Germany Netherlands
Core eurozone
050100150200CDS premia (basis points)
01jan2008 01jul2009 01jan2011 01jul2012
Year
Denmark Japan
Norway Sweden
United Kingdom United States
Non-eurozone
Chapter1:SovereignCreditRiskCo-movementsintheEurozone
Figure 1.2:Credit risk in sovereign debt markets (CDS, log difference)
The graph plots the log differenced series of sovereign CDS premia for the 17 countries in the sample over the period from January 2008 to September 2012.
Data source: Datastream, own calculations.
1:SovereignCreditRiskCo-movementsintheEurozone
series are averaged across countries belonging to one country group. All series are depicted in the upper left panel followed by the averaged series across core Eurozone country pairs (EZ: Core-core), periphery Eurozone country pairs (EZ: Periphery-periphery), core and periphery Eurozone country pairs (EZ:
Core-periphery), Eurozone and non Eurozone country pairs belonging to the EU (EU: EZ-non EZ), EU and non EU country pairs (Other: EU-non EU).
Key events are marked by a vertical line, e.g. 1 corresponds to the failure of Lehman Brothers in September 2008.
1 2 3 4 5 6 7 8 9
1:Lehman Brothers 2:G20 stimulus package 3:12-month LTRO 4:Greek deficit 5:Securities market programme 6:Stress test results
41
Chapter1:SovereignCreditRiskCo-movementsintheEurozone
Figure 1.4:Contagious episodes
The graph shows the number of measured contagious episodes, i.e. the number ofqwbeing positive and significant, summed up across country pairs for each week of the estimation period from January 2008 to September 2012. The total sum across all country pairs is depicted in the upper left panel followed by the partial sums over core Eurozone country pairs (EZ: Core-core), periphery Eurozone country pairs (EZ: Periphery-periphery), core and periphery Eurozone country pairs (EZ: Core-periphery), Eurozone and non Eurozone country pairs belonging to the EU (EU: EZ-non EZ), EU and non EU country pairs (Other:
EU-non EU). Key events are marked by a vertical line, e.g. 1 corresponds to the failure of Lehman Brothers in September 2008.
1 2 3 4 5 6 7 8 9
1:Lehman Brothers 2:G20 stimulus package 3:12-month LTRO 4:Greek deficit 5:Securities market programme 6:Stress test results 7:Portugal seeks bailout 8:Stress test results 9:Greek haircut 10:New ECB president 11:36-month LTRO 12:Spain and Cyprus
42
Table 1.1: Summary statistics: daily 5-year CDS premia (log difference)
The table shows summary statistics for the daily series of 5-year sovereign CDS premia in log differences. The period starts in January 2008 and ends in September 2012. The table gives the minimum, maximum, mean, standard deviation, skewness, kurtosis, the augmented Dickey Fuller tests with lag order 10 to test for a unit root, the Jarque Bera test statistic to test for normality, and the Q-statistic with lag order 10 to test for serial correlation in the squared series.
Country Min Max Mean Std.Dev. Skewness Kurtosis ADF Jarque- Q-statistic lag(10) Bera lag (10)
Austria -0.627 0.539 0.002 0.058 0.69 26.43 -9.71 28000 191
Belgium -0.239 0.306 0.002 0.050 0.45 7.28 -10.93 986 100
Denmark -0.624 0.606 0.002 0.069 -0.54 24.86 -10.26 25000 302
Finland -0.337 0.255 0.002 0.048 -0.03 11.75 -10.14 3638 190
France -0.626 0.343 0.002 0.065 -0.50 14.56 -10.96 6942 268
Germany -0.622 0.398 0.002 0.060 -0.59 18.73 -11.06 13000 115
Greece -0.497 0.307 0.007 0.052 -0.53 18.15 -8.32 10000 54
Ireland -0.626 0.601 0.002 0.057 0.61 35.56 -11.33 55000 120
Italy -0.416 0.331 0.002 0.049 -0.28 12.82 -11.69 4993 164
Japan -0.437 0.363 0.002 0.053 -0.10 16.35 -10.00 9191 97
Netherlands -0.628 0.640 0.002 0.065 -0.10 26.42 -11.22 28000 320
Norway -1.259 0.699 0.000 0.071 -5.77 125.30 -13.07 780000 1
Portugal -0.560 0.280 0.003 0.048 -0.88 21.91 -10.90 19000 122
Spain -0.624 0.559 0.003 0.053 -0.34 31.07 -11.92 41000 220
Sweden -0.621 0.621 0.001 0.072 0.26 19.77 -11.13 15000 265
United Kingdom -0.628 0.511 0.001 0.051 -0.84 37.07 -10.69 60000 195 United States -0.620 0.699 0.001 0.054 1.88 53.87 -9.89 130000 158
Table 1.2: Correlation matrix: daily 5-year CDS premia (log difference)
The table shows the correlation matrix for the daily series of 5-year sovereign CDS premia in log differences. The upper part is based on the period January 2008 to October 2009. The lower part is based on the period November 2009 to September 2012.
AU BE DK FI FR DE GR IE IT JP NL NO PT ES SE UK USA France 0.64 0.64 0.60 0.52 1.00 Germany 0.51 0.53 0.50 0.50 0.63 1.00 Greece 0.69 0.61 0.65 0.51 0.62 0.53 1.00 Ireland 0.65 0.63 0.54 0.41 0.61 0.55 0.67 1.00 Italy 0.65 0.57 0.53 0.44 0.56 0.53 0.69 0.57 1.00 Japan 0.35 0.28 0.26 0.20 0.25 0.17 0.19 0.25 0.28 1.00 Netherlands 0.68 0.62 0.61 0.58 0.62 0.63 0.58 0.56 0.54 0.22 1.00 Norway 0.55 0.53 0.46 0.40 0.51 0.45 0.50 0.50 0.47 0.15 0.49 1.00 Portugal 0.72 0.62 0.55 0.47 0.61 0.51 0.66 0.68 0.69 0.31 0.59 0.50 1.00 Spain 0.70 0.64 0.59 0.53 0.66 0.53 0.69 0.63 0.65 0.28 0.58 0.49 0.73 1.00 Sweden 0.60 0.52 0.60 0.51 0.58 0.50 0.63 0.53 0.53 0.26 0.57 0.47 0.57 0.57 1.00 United Kingdom 0.55 0.59 0.55 0.48 0.62 0.44 0.56 0.46 0.50 0.18 0.52 0.43 0.53 0.60 0.50 1.00 United States 0.29 0.33 0.33 0.31 0.47 0.36 0.34 0.26 0.36 0.13 0.36 0.24 0.32 0.36 0.24 0.46 1.00
November 2009 - September 2012
Austria 1.00
Belgium 0.70 1.00
Denmark 0.50 0.48 1.00
Finland 0.54 0.47 0.43 1.00 France 0.64 0.66 0.43 0.46 1.00 Germany 0.64 0.64 0.53 0.45 0.66 1.00 Greece 0.41 0.50 0.31 0.32 0.44 0.41 1.00 Ireland 0.53 0.63 0.41 0.39 0.54 0.52 0.52 1.00 Italy 0.64 0.78 0.48 0.47 0.65 0.62 0.54 0.69 1.00 Japan 0.21 0.21 0.20 0.21 0.22 0.24 0.18 0.20 0.23 1.00 Netherlands 0.68 0.65 0.52 0.52 0.59 0.66 0.36 0.46 0.59 0.22 1.00 Norway 0.60 0.50 0.44 0.51 0.48 0.56 0.34 0.42 0.46 0.18 0.56 1.00 Portugal 0.55 0.66 0.39 0.39 0.55 0.60 0.57 0.74 0.76 0.18 0.46 0.43 1.00 Spain 0.62 0.76 0.50 0.44 0.65 0.63 0.56 0.72 0.88 0.17 0.54 0.46 0.80 1.00 Sweden 0.44 0.39 0.39 0.42 0.36 0.41 0.30 0.30 0.37 0.12 0.46 0.42 0.30 0.37 1.00 United Kingdom 0.65 0.68 0.43 0.45 0.62 0.65 0.44 0.59 0.71 0.21 0.58 0.48 0.62 0.68 0.38 1.00
Chapter 1: Sovereign Credit Risk Co-movements in the Eurozone
Table 1.3:Explanatory variables descriptions and sources: regression analysis
Classification Variable Description Frequency Source
Global controls (m)
%∆VDAX volatility pct. change of DAX im-plied volatility
monthly Datastream
%∆Euribor - Eonia pct. change in spread monthly Datastream
%∆EUR/USD pct. change in exchange
∆GDP Q/Q change in sum of
log GDP (times 100) withXi= Foreign reservesi
GDPi
Bank equity corr. Monthly correlation of bank stock price index (percent)
monthly Datastream
Linkages (ij) Banks’ foreign claims sum of bilateral claims over sum of GDP
a Bilateral claims are banks’ total foreign claims reported onultimate risk basis (URB). If data on URB was not available, data reported onintermediate borrower basis(IBB) were used instead.
44
Table1.4:DCCGARCHmodel:estimationresults ThetablereportsestimationresultsofbivariateDCC-GARCHmodels.Thereturnequationisgivenby:yt=γ0+γ1yt−1+ξt.Thevarianceequationsis: hi,t=ωi+aiξ2 i,t−1+bihi,t−1.Thecoefficientsofthecorrelationprocessaregivenby:αandβ.∗∗∗,∗∗,∗denotestatisticalsignificanceatthe1%,5%,and 10%levelsrespectively.Standarderrors(SE)arerobusttonon-normality. trypairijMeanequationVarianceequationCovarianceequation jγ0iSEγ1iSEγ0jSEγ1jSEω0iSEaiSEbiSEω0jSEajSEbjSEαSEβSE UBelgium-0.0010.0010.124***0.0270.0000.0010.090***0.0280.000***0.0000.072***0.0080.932***0.0060.000***0.0000.116***0.0190.865***0.0230.076***0.0110.859***0.015 Denmark-0.0010.0010.099***0.0280.0000.0010.072**0.0300.000***0.0000.053***0.0070.943***0.0060.000***0.0000.061***0.0090.911***0.0130.149***0.0260.463***0.092 Finland-0.0010.0010.110***0.0290.0000.0010.078**0.0350.000***0.0000.067***0.0100.923***0.0100.000***0.0000.185***0.0300.722***0.0430.0030.0020.991***0.002 France-0.0010.0010.064**0.0280.0000.0010.0210.0290.000***0.0000.058***0.0070.941***0.0050.000***0.0000.102***0.0180.882***0.0190.026***0.0060.958***0.009 Germany-0.0010.0010.083***0.0280.0000.0010.0330.0300.000**0.0000.070***0.0080.935***0.0060.000***0.0000.099***0.0140.898***0.0130.042***0.0080.900***0.022 Greece-0.0010.0010.138***0.0290.002**0.0010.114***0.0320.000**0.0000.057***0.0070.943***0.0060.000***0.0000.074***0.0080.929***0.0060.053***0.0110.878***0.020 Ireland-0.0020.0010.147***0.0280.0000.0010.194***0.0300.000***0.0000.063***0.0090.934***0.0060.000***0.0000.176***0.0200.863***0.0100.0280.0170.2720.189 Italy-0.0020.0010.133***0.0270.0000.0010.088***0.0290.000**0.0000.059***0.0070.942***0.0050.000***0.0000.168***0.0210.793***0.0240.064***0.0140.845***0.027 Japan-0.0020.0010.141***0.0320.0000.0010.064*0.0330.000**0.0000.061***0.0080.939***0.0060.000***0.0000.089***0.0110.908***0.0090.0060.0060.958***0.025 Netherlands-0.0010.0010.101***0.027-0.0010.0010.082***0.0280.000**0.0000.057***0.0070.945***0.0050.000***0.0000.081***0.0130.917***0.0120.007*0.0040.972***0.007 Norway-0.0020.0010.133***0.029-0.002*0.0010.0540.0340.000**0.0000.052***0.0070.948***0.0050.000***0.0000.050***0.0070.943***0.0070.012**0.0050.968***0.005 Portugal-0.0010.0010.158***0.0280.0010.0010.153***0.0290.000***0.0000.059***0.0070.941***0.0050.000***0.0000.104***0.0160.863***0.0210.066***0.0120.868***0.015 Spain-0.0020.0010.122***0.0270.0010.0010.0290.0300.000***0.0000.081***0.0100.921***0.0070.000***0.0000.132***0.0180.854***0.0170.031***0.0120.869***0.050 Sweden-0.0010.0010.085***0.029-0.003**0.001-0.053*0.0300.000***0.0000.060***0.0080.940***0.0060.000***0.0000.061***0.0070.930***0.0080.050***0.0100.894***0.023 UK-0.0020.0010.110***0.027-0.0010.0010.0160.0270.000***0.0000.066***0.0080.936***0.0060.000***0.0000.057***0.0090.940***0.0080.084***0.0130.810***0.023 USA-0.002**0.0010.151***0.029-0.002*0.0010.0230.0400.000***0.0000.058***0.0080.942***0.0060.000***0.0000.305***0.0440.705***0.0330.0020.0040.992***0.003 Denmark0.0010.0010.078**0.0350.0010.0010.084**0.0390.0000.0000.071**0.0340.905***0.0570.0000.0000.063**0.0260.920***0.0400.025***0.0080.974***0.007 Finland0.0010.0010.118***0.0380.0000.0010.104**0.0420.0000.0000.088***0.0290.872***0.0590.000*0.0000.185**0.0780.725***0.1090.044*0.0260.777***0.066 France0.0010.0010.0610.0380.0000.0010.087**0.0370.0000.0000.078**0.0310.891***0.0570.0000.0000.108***0.0360.879***0.0400.103***0.0340.697***0.083 Greece0.0010.0010.100***0.0340.003**0.0010.126***0.0370.0000.0000.071*0.0410.881***0.0870.0000.0000.074***0.0210.929***0.0210.017***0.0050.974***0.004 Ireland0.0000.0010.105***0.0380.0000.0010.213***0.0750.0000.0000.0530.0360.932***0.0530.0000.0000.165*0.0870.876***0.0410.076***0.0250.683***0.124 Italy0.0000.0010.124***0.0360.0000.0010.079**0.0360.0000.0000.093***0.0290.893***0.0400.000**0.0000.146***0.0290.823***0.0390.0590.0790.906***0.160 Netherlands0.0000.0010.0550.0380.0000.0010.104***0.0350.0000.0000.072**0.0310.914***0.0440.000*0.0000.105***0.0310.896***0.0280.053***0.0140.874***0.017 Norway0.0000.0010.120***0.041-0.0020.0010.0820.0500.0000.0000.075**0.0360.896***0.0600.0000.0000.055*0.0320.939***0.0280.0030.0020.972***0.009 Portugal0.0010.0010.114***0.0330.0020.0010.168***0.0330.0000.0000.065**0.0320.902***0.0590.000**0.0000.105***0.0260.854***0.0330.0540.0340.774***0.112 Spain0.0000.0010.119***0.0340.002*0.0010.087**0.0370.0000.0000.094***0.0320.887***0.0430.000**0.0000.156***0.0400.834***0.0250.114***0.0250.850***0.019 Sweden0.0000.0010.086**0.035-0.003*0.002-0.0330.0390.0000.0000.094**0.0450.871***0.0800.000*0.0000.067***0.0190.927***0.0200.050**0.0210.886***0.030 UK0.0000.0010.097***0.037-0.0010.0010.0380.0370.0000.0000.073**0.0310.913***0.0420.0000.0000.063***0.0180.939***0.0190.019***0.0070.971***0.005 USA0.0000.0010.147***0.039-0.0020.0010.083*0.0480.0000.0000.100**0.0460.869***0.0730.000*0.0000.2720.1950.729***0.1240.164**0.0790.0190.016 Finland0.0010.0010.0570.0390.0000.0010.0410.0410.0000.0000.035**0.0170.937***0.0490.000**0.0000.169***0.0580.730***0.0830.019***0.0040.979***0.004 France0.0010.0020.0280.0510.0010.0020.074**0.0320.0000.0000.1020.1150.860***0.1620.0000.0000.100*0.0510.879***0.0660.138**0.0650.663***0.102 Germany0.0000.0020.066*0.0370.0010.0010.0440.0330.0000.0000.077*0.0410.900***0.0560.000*0.0000.092***0.0240.902***0.0260.044**0.0190.926***0.025 Greece0.0010.0020.086**0.0420.003***0.0010.131***0.0360.0000.0000.066**0.0320.899***0.0480.0000.0000.075***0.0220.928***0.0220.034***0.0060.960***0.005 Ireland0.0000.0020.099**0.0390.0000.0010.200***0.0730.0000.0000.070**0.0330.898***0.0480.000*0.0000.153*0.0840.876***0.0400.017**0.0080.979***0.010 Italy0.0000.0020.094**0.0400.0000.0010.093**0.0360.0000.0000.065*0.0330.906***0.0510.000**0.0000.153***0.0350.797***0.0510.064***0.0170.862***0.027 Japan0.0000.0010.095**0.0430.0000.0010.0650.0410.0000.0000.063**0.0310.910***0.0470.0000.0000.091***0.0310.907***0.0280.0030.0040.995***0.001 Netherlands0.0000.0020.0500.039-0.0010.0010.063*0.0340.0000.0000.074**0.0350.901***0.0530.000**0.0000.068***0.0170.925***0.0180.099***0.0250.801***0.055 Norway0.0000.0010.085**0.041-0.0020.0010.0440.0520.0000.0000.055**0.0260.917***0.0420.0000.0000.0500.0320.942***0.0300.0040.0040.991***0.001 Portugal0.0000.0020.114***0.0400.0010.0010.160***0.0340.0000.0000.067*0.0360.903***0.0560.000**0.0000.111***0.0310.852***0.0370.0520.0340.858***0.087 Spain0.0010.0020.136***0.0370.0020.0010.090**0.0420.0000.0000.083**0.0390.884***0.0530.000**0.0000.140***0.0400.836***0.0260.081***0.0300.756***0.057 Sweden0.0010.0020.0370.039-0.0020.002-0.0580.0350.0000.0000.076**0.0360.891***0.0530.000**0.0000.064***0.0180.921***0.0220.149***0.0440.300**0.121 UK0.0000.0020.0600.038-0.0010.001-0.0020.0350.0000.0000.060**0.0270.915***0.0390.0000.0000.056***0.0170.941***0.0180.027***0.0050.972***0.003 USA-0.0010.0020.103**0.042-0.0020.0010.0140.0450.0000.0000.060**0.0250.916***0.0410.000*0.0000.3140.2320.687***0.1420.0080.0060.990***0.002 France0.0000.0010.080**0.0410.0010.0010.081**0.0340.000**0.0000.164***0.0600.741***0.0870.0000.0000.110***0.0370.857***0.0530.077**0.0330.3040.266 Germany0.0010.0010.0480.0420.0010.0010.061*0.0360.0000.0000.215**0.1080.704***0.1310.0000.0000.104**0.0500.872***0.0790.043***0.0160.890***0.025 Greece0.0010.0010.124***0.0470.003**0.0010.139***0.0380.000*0.0000.176***0.0680.738***0.0890.0000.0000.072***0.0190.933***0.0190.0140.0130.914***0.019 Ireland0.0000.0010.128**0.0540.0000.0010.207***0.0670.0000.0000.222**0.1110.670***0.1550.000**0.0000.223*0.1220.815***0.0490.0020.0010.992***0.001 Italy0.0000.0010.115***0.0430.0000.0010.075**0.0370.000*0.0000.188***0.0730.725***0.0950.000**0.0000.196***0.0430.765***0.0510.0040.0040.989***0.002 Netherlands0.0000.0010.0620.0400.0000.0010.111***0.0350.000*0.0000.187***0.0710.727***0.0960.0000.0000.109**0.0480.871***0.0600.105***0.0380.674***0.134 Norway0.0000.0010.0740.048-0.0010.0010.0210.0380.000**0.0000.187**0.0760.724***0.0940.000*0.0000.106**0.0460.833***0.0680.0820.0510.650***0.075 Portugal0.0000.0010.140***0.0460.0020.0010.172***0.0350.000**0.0000.171***0.0590.752***0.0680.000**0.0000.126***0.0320.844***0.0310.0070.0090.987***0.006 Spain0.0000.0010.145***0.0440.0020.0010.073**0.0330.000*0.0000.183**0.0730.720***0.1030.000*0.0000.135***0.0350.833***0.0470.0020.0020.992***0.002 Sweden0.0000.0010.0490.042-0.0020.002-0.0390.0360.000**0.0000.165***0.0600.746***0.0820.0000.0000.071**0.0300.913***0.0440.0270.0200.802***0.118 UK0.0000.0010.081*0.047-0.0010.001-0.0030.0400.000*0.0000.197**0.0830.710***0.1130.000***0.0000.195***0.0710.653***0.0890.023***0.0080.972***0.008 Germany0.0000.0010.0460.0320.0000.001-0.0090.0330.000**0.0000.121***0.0320.870***0.0340.000**0.0000.091***0.0220.903***0.0230.110***0.0270.670***0.066 Greece0.0010.0010.142***0.0360.003**0.0010.093**0.0380.000*0.0000.143***0.0490.850***0.0490.0000.0000.073***0.0200.928***0.0200.039***0.0140.887***0.028 Ireland0.0000.0010.150***0.0420.0000.0010.177**0.0830.000**0.0000.144***0.0470.835***0.0520.0000.0000.166*0.0860.872***0.0390.065*0.0380.692***0.069 Italy0.0000.0010.077**0.0310.0000.0010.061*0.0320.000*0.0000.126***0.0440.850***0.0540.000**0.0000.149***0.0320.804***0.0410.054***0.0140.862***0.015 Japan0.0000.0010.106***0.0340.0000.0010.0580.0400.000*0.0000.117***0.0390.860***0.0470.0000.0000.093***0.0330.904***0.0300.004**0.0020.996***0.001 Netherlands0.0000.0010.0480.0310.0000.0010.0500.0330.0000.0000.111***0.0370.876***0.0440.000**0.0000.085***0.0200.910***0.0190.034***0.0090.940***0.009 Norway0.0000.0010.105***0.038-0.0020.0010.0320.0480.0000.0000.119**0.0470.862***0.0530.0000.0000.0490.0370.943***0.0370.016*0.0080.965***0.007 Portugal0.0000.0010.113***0.0340.0020.0010.126***0.0330.000*0.0000.132***0.0430.855***0.0480.000**0.0000.109***0.0290.864***0.0360.023***0.0070.956***0.008 Spain0.0010.0010.115***0.0350.002*0.0010.0370.0430.000**0.0000.124***0.0350.861***0.0370.000**0.0000.165***0.0440.828***0.0260.100***0.0360.714***0.077 Sweden0.0000.0010.077**0.034-0.003*0.002-0.0570.0380.000*0.0000.127***0.0450.855***0.0510.000*0.0000.062***0.0160.930***0.0180.030***0.0090.956***0.017 UK0.0000.0010.062**0.030-0.0010.001-0.0020.0330.0000.0000.089***0.0310.900***0.0360.0000.0000.064***0.0170.937***0.0170.041***0.0130.936***0.019 USA0.0000.0010.095***0.033-0.0020.0010.0270.0410.000*0.0000.132***0.0420.846***0.0480.000**0.0000.3410.2100.662***0.1270.019**0.0090.967***0.009
Chapter 1: Sovereign Credit Risk Co-movements in the Eurozone
Table1.4Continued
CountrypairijMeanequationVarianceequationCovarianceequationijγ0iSEγ1iSEγ0jSEγ1jSEω0iSEaiSEbiSEω0jSEajSEbjSEαSEβSE
6)DEGreece0.0000.0010.080**0.0370.003**0.0010.105***0.0380.0000.0000.102***0.0340.888***0.0380.0000.0000.075***0.0200.929***0.0200.032**0.0140.870***0.032Ireland0.0000.0010.138***0.034-0.0010.0010.165**0.0660.000**0.0000.131***0.0410.861***0.0400.000*0.0000.159**0.0780.877***0.0350.036***0.0100.843***0.031Italy0.0000.0010.080**0.0320.0010.0010.061*0.0350.000*0.0000.102***0.0270.895***0.0270.000**0.0000.147***0.0300.818***0.0390.066***0.0220.820***0.047Netherlands0.0000.0010.0370.030-0.0010.0010.068**0.0320.000*0.0000.086***0.0190.910***0.0200.000*0.0000.090***0.0250.909***0.0240.066***0.0230.798***0.095Norway0.0000.0010.077*0.043-0.0020.0010.0310.0500.000*0.0000.086***0.0270.907***0.0280.0000.0000.0520.0350.942***0.0330.0030.0040.977***0.008Portugal0.0000.0010.114***0.0340.0020.0010.144***0.0330.0000.0000.111***0.0310.887***0.0310.000**0.0000.128***0.0340.838***0.0370.0080.0050.984***0.004Spain0.0010.0010.125***0.0330.002*0.0010.0660.0420.000**0.0000.107***0.0280.884***0.0280.000**0.0000.175***0.0430.824***0.0290.073***0.0190.790***0.043Sweden0.0000.0010.0320.033-0.003*0.002-0.0610.0390.000*0.0000.087***0.0270.901***0.0290.000*0.0000.061***0.0180.930***0.0200.064**0.0290.2530.183UK0.0000.0010.0220.033-0.0010.001-0.0100.0340.000**0.0000.081***0.0230.910***0.0240.0000.0000.062***0.0170.938***0.0180.036***0.0070.951***0.008USA-0.0010.0010.077**0.032-0.0020.0010.0340.0430.000*0.0000.093***0.0270.896***0.0300.000**0.0000.3020.1860.698***0.1140.125***0.0470.1710.1547)GRIreland0.0020.0010.154***0.0490.0000.0010.208**0.0840.0000.0000.079***0.0210.930***0.0200.0000.0000.148*0.0790.885***0.0370.193**0.0770.4080.285Italy0.002*0.0010.115***0.0360.0000.0010.152***0.0340.0000.0000.072***0.0210.928***0.0230.000**0.0000.145***0.0260.836***0.0310.029***0.0110.939***0.016Netherlands0.002**0.0010.112***0.038-0.0010.0010.125***0.0370.0000.0000.074***0.0210.930***0.0210.0000.0000.090***0.0330.908***0.0300.013*0.0070.961***0.014Norway0.002**0.0010.168***0.041-0.0020.0010.111**0.0550.0000.0000.071***0.0200.930***0.0200.0000.0000.0520.0370.941***0.0350.0170.0310.914***0.061Portugal0.003**0.0010.088**0.0360.002**0.0010.123***0.0340.0000.0000.075***0.0200.926***0.0230.0000.0000.111***0.0290.875***0.0350.068***0.0150.892***0.016Spain0.003**0.0010.122***0.0370.0010.0010.094*0.0490.0000.0000.081***0.0240.926***0.0210.0000.0000.183***0.0630.824***0.0280.088**0.0350.822***0.038Sweden0.002*0.0010.090**0.037-0.0020.002-0.0050.0410.0000.0000.073***0.0200.930***0.0210.0000.0000.058***0.0140.937***0.0150.0440.0330.941***0.059UK0.003**0.0010.105***0.040-0.0010.0010.070*0.0390.0000.0000.071***0.0190.932***0.0210.0000.0000.061***0.0170.941***0.0190.026***0.0070.969***0.005USA0.002*0.0010.147***0.038-0.0020.0020.0560.0470.0000.0000.071***0.0200.932***0.0200.0000.0000.3260.2930.666***0.2040.0120.0100.973***0.0078)IEItaly-0.0010.0010.211***0.0770.0000.0010.157***0.0480.0000.0000.151*0.0800.881***0.0410.000**0.0000.209***0.0400.763***0.0420.0630.0580.788***0.246Japan-0.0010.0010.231***0.0830.0000.0010.0660.0400.0000.0000.167*0.0920.874***0.0420.0000.0000.091***0.0320.907***0.0290.0000.0000.990***0.011Netherlands-0.0010.0010.194**0.076-0.0010.0010.149***0.0380.000*0.0000.151*0.0800.879***0.0390.0000.0000.111**0.0490.881***0.0480.064**0.0270.732***0.083Norway-0.0010.0010.218***0.080-0.002*0.0010.0770.0530.0000.0000.154*0.0880.881***0.0420.0000.0000.053*0.0320.940***0.0290.0060.0070.976***0.005Portugal-0.0010.0010.181**0.0770.0010.0010.190***0.0520.0000.0000.157**0.0780.880***0.0370.000**0.0000.184***0.0550.794***0.0510.0810.0640.752***0.286Spain0.0000.0010.170**0.0790.0010.0010.084*0.0480.000**0.0000.220**0.1020.829***0.0390.000**0.0000.192***0.0450.807***0.0400.077***0.0280.574***0.117Sweden-0.0010.0010.187**0.078-0.003*0.001-0.0310.0400.0000.0000.171*0.0960.872***0.0430.000*0.0000.059***0.0160.933***0.0180.020***0.0060.970***0.004UK-0.0010.0010.163**0.078-0.0020.0010.0450.0370.000*0.0000.159*0.0870.876***0.0370.0000.0000.076***0.0220.926***0.0200.063***0.0150.884***0.028USA-0.0010.0010.223***0.082-0.0020.0010.0650.0460.0000.0000.171*0.0980.871***0.0430.000*0.0000.3090.2230.694***0.1350.0040.0030.990***0.0029)ITNetherlands0.0000.0010.073**0.034-0.0010.0010.123***0.0350.000**0.0000.179***0.0370.783***0.0440.000*0.0000.125**0.0510.875***0.0440.057***0.0180.864***0.018Norway0.0000.0010.140***0.045-0.002*0.0010.0700.0490.000**0.0000.186***0.0410.766***0.0490.0000.0000.0490.0370.943***0.0360.0040.0040.973***0.007Portugal0.0000.0010.119***0.0290.0010.0010.142***0.0310.000**0.0000.137***0.0240.809***0.0410.000**0.0000.115***0.0260.829***0.0360.019**0.0090.970***0.020Spain-0.0030.0030.170*0.089-0.0010.0020.1110.0850.000*0.0000.176***0.0550.747***0.0750.000*0.0000.170***0.0470.790***0.0380.3490.2260.307***0.098Sweden0.0000.0010.101***0.035-0.003**0.001-0.0280.0380.000**0.0000.184***0.0380.764***0.0470.000*0.0000.064***0.0170.929***0.0190.066***0.0150.870***0.019UK0.0000.0010.076**0.036-0.0010.0010.0350.0380.000**0.0000.139***0.0290.817***0.0440.0000.0000.057***0.0170.944***0.0180.044***0.0150.896***0.027USA0.0000.0010.143***0.036-0.0020.0010.0680.0480.000**0.0000.167***0.0360.781***0.0480.000*0.0000.2960.1920.711***0.1160.110*0.0610.3250.39510)JPNorway0.0000.0010.087**0.042-0.0020.0010.0650.0440.0000.0000.085**0.0330.913***0.0290.0000.0000.066***0.0210.931***0.0160.0000.0010.995***0.002Portugal0.0000.0010.069*0.0400.0010.0010.199***0.0350.0000.0000.087***0.0320.908***0.0300.000**0.0000.114***0.0320.846***0.0360.0070.0100.900***0.054Spain0.0000.0010.072*0.0400.0010.0010.167**0.0710.0000.0000.087***0.0310.908***0.0290.0000.0000.185***0.0640.809***0.0310.0100.0130.772***0.11111)NLNorway-0.0010.0010.128***0.045-0.002*0.0010.0400.0480.000*0.0000.069***0.0220.924***0.0220.0000.0000.0470.0370.945***0.0380.0040.0060.974***0.007Portugal-0.0010.0010.142***0.0350.0010.0010.150***0.0320.000*0.0000.123**0.0500.874***0.0440.000**0.0000.125***0.0350.838***0.0410.0260.0220.899***0.042Spain0.0000.0010.147***0.0330.0020.0010.0640.0400.000*0.0000.099***0.0320.898***0.0310.000**0.0000.167***0.0420.826***0.0260.086***0.0250.795***0.053Sweden-0.0010.0010.084**0.034-0.003*0.002-0.0510.0380.000*0.0000.081***0.0250.912***0.0250.000*0.0000.061***0.0180.931***0.0200.053**0.0220.855***0.102UK-0.0010.0010.093***0.034-0.0010.0010.0160.0330.000*0.0000.078***0.0190.919***0.0180.0000.0000.056***0.0160.943***0.0160.034***0.0090.945***0.010USA-0.0010.0010.153***0.036-0.0020.0010.0550.0440.000*0.0000.091***0.0290.903***0.0280.000*0.0000.2710.1940.723***0.1250.132*0.0710.1040.24712)NOPortugal-0.0020.0010.095**0.0420.0010.0010.188***0.0330.000**0.0000.098***0.0280.905***0.0210.000**0.0000.115***0.0360.851***0.0380.0120.0110.970***0.004Spain0.0010.0020.0440.0340.002*0.0010.093**0.0370.009***0.0030.003**0.001-0.954***0.0200.000**0.0000.207***0.0670.799***0.0290.0050.0030.976***0.004Sweden-0.0020.0010.0140.046-0.003*0.002-0.0310.0400.0000.0000.0470.0290.943***0.0280.000*0.0000.057***0.0160.931***0.0190.052***0.0190.2550.226UK-0.002*0.0010.0450.053-0.002*0.0010.0380.0490.0000.0000.0520.0350.941***0.0330.0000.0000.058***0.0190.942***0.0190.0170.0110.966***0.007USA-0.002*0.0010.0550.050-0.0020.0010.0400.0500.0000.0000.0510.0350.941***0.0330.000*0.0000.3030.2160.700***0.1330.0020.0040.990***0.00413)PTSpain0.0010.0010.198***0.0610.0010.0010.1000.0750.000**0.0000.136***0.0350.808***0.0420.0000.0000.152***0.0580.817***0.0290.1720.1170.263***0.095UK0.0010.0010.137***0.035-0.002*0.0010.063*0.0380.000*0.0000.105***0.0290.868***0.0360.0000.0000.064***0.0180.938***0.0190.022***0.0080.963***0.008USA0.0010.0010.171***0.035-0.0020.0010.0750.0470.000**0.0000.122***0.0340.837***0.0390.000**0.0000.3070.2030.705***0.1180.160*0.0840.0220.03214)ESSweden0.0010.0010.084*0.048-0.0020.002-0.0120.0390.000*0.0000.168***0.0520.820***0.0270.000*0.0000.062***0.0190.927***0.0220.053***0.0140.865***0.019UK0.0010.0010.0340.036-0.0010.0010.0430.0300.000**0.0000.117***0.0310.860***0.0260.000*0.0000.074***0.0230.919***0.0240.057**0.0220.840***0.091USA0.0010.0010.128**0.053-0.0020.0010.0740.0480.000*0.0000.170***0.0540.825***0.0240.0000.0000.2410.1920.747***0.1300.053***0.0170.906***0.02115)SEUK-0.003**0.002-0.0530.039-0.0020.0010.0120.0360.000*0.0000.061***0.0170.930***0.0190.0000.0000.063***0.0200.938***0.0200.039**0.0160.866***0.051USA-0.004**0.002-0.0450.041-0.0020.0010.0270.0460.000*0.0000.063***0.0180.928***0.0210.000*0.0000.2860.1940.710***0.1200.029***0.0110.917***0.02416)UKUSA-0.002*0.0010.0410.038-0.0020.0010.0570.0450.0000.0000.077***0.0250.923***0.0250.0000.0000.2180.1700.761***0.1240.180***0.0670.2730.265
46
Table 1.5: Sample countries: classification into country groups
The table shows the 17 sample countries classified into country groups: Core Eurozone;
periphery Eurozone; EU but non Eurozone; non EU countries.
Core Eurozone Periphery Eurozone EU, non-Eurozone Non EU
AU: Austria GR: Greece DK: Denmark JP: Japan
BE: Belgium IE: Ireland SE: Sweden NO: Norway
FI: Finland IT: Italy UK: United Kingdom USA: United States FR: France PT: Portugal
DE: Germany ES: Spain NL: Netherlands
Table 1.6: Summary statistics: DCC time series
The table shows summary statistics (minimum, maximum, mean and standard deviation) for the estimated dynamic conditional correlation (DCC) series. The statistics are reported for different time periods (January 2008-September 2012; January 2008-mid September 2008;
mid September 2008-October 2009; November 2009-September 2012) and for different groups of country pairs (core Eurozone country pairs (EZ: Core-core), periphery Eurozone coun-try pairs (EZ: Periphery-periphery), core and periphery Eurozone councoun-try pairs (EZ: Core-periphery), Eurozone and non Eurozone country pairs belonging to the EU (EU: EZ-non EZ), the EU and non EU country pairs (Other: EU-non EU).
Country group Min Max Mean Std.Dev.
(2008-2012)
EZ: Core-core -0.38 0.91 0.50 0.12
EZ: Periphery-periphery -0.48 0.98 0.57 0.14 EZ: Core-periphery -0.24 0.92 0.47 0.14
EU: EZ-non EZ -0.51 0.95 0.44 0.16
Other: EU-non EU -0.67 0.93 0.29 0.13
Total -0.67 0.98 0.42 0.17
(January 2008-mid September 2008)
EZ: Core-core -0.38 0.91 0.36 0.17
EZ: Periphery-periphery -0.37 0.97 0.51 0.16 EZ: Core-periphery -0.24 0.92 0.34 0.17
EU: EZ-non EZ -0.38 0.95 0.31 0.17
Other: EU-non EU -0.67 0.93 0.19 0.14
Total -0.67 0.97 0.30 0.19
(mid September 2008-October 2009)
EZ: Core-core -0.02 0.91 0.53 0.10
EZ: Periphery-periphery -0.20 0.98 0.59 0.13 EZ: Core-periphery -0.12 0.88 0.49 0.12
EU: EZ-non EZ -0.24 0.93 0.51 0.12
Other: EU-non EU -0.32 0.87 0.30 0.12
Total -0.32 0.98 0.46 0.15
(November 2009-September 2012)
EZ: Core-core -0.01 0.89 0.52 0.09
EZ: Periphery-periphery -0.48 0.97 0.58 0.14 EZ: Core-periphery -0.15 0.91 0.48 0.12
EU: EZ-non EZ -0.51 0.86 0.45 0.14
Other: EU-non EU -0.30 0.91 0.30 0.12
Total -0.51 0.97 0.43 0.15
Chapter 1: Sovereign Credit Risk Co-movements in the Eurozone
Table 1.7:Regression analysis: estimation results
The dependent variable is the measure for sovereign credit risk co-movements adjusted for volatility (ρijm) in percent. The estimation period runs from January 2008 to March 2012 on a monthly basis. Quarterly data is (linearly) interpolated to monthly frequency. Specifica-tions (II) and (IV) report the estimated coefficients of the panel data model including country pair as well as time fixed effects. Specifications (III) and (IV) include interaction terms of the (0/1)-contagion indicator (CI) with public debt, bank equity, the financial linkage (banks’
foreign claims), the real linkage (trade), and the proxy for common market sentiment (GDP weighted stock market volatilities). Continuous variables entering the interaction terms are centered around their mean to facilitate interpretation. Standard errors are clustered by country pair. The reported R2 is the R2 within. ∗∗∗,∗∗,∗denote statistical significance at the 1%, 5%, and 10% levels respectively.
(I) (II) (III) (IV)
No FE ij+mFE No FE ij+mFE
Global controls %∆VDAX volatility 0.0165*** 0.0210***
(0.0048) (0.0047) Foreign reserves -0.0220 -0.0312* -0.0253 -0.0330*
(0.0164) (0.0186) (0.0169) (0.0187) Banking system size 0.0002*** 0.0001* 0.0002*** 0.0001
(0.0000) (0.0001) (0.0000) (0.0001)
Public debt -0.0058 -0.0128 -0.0079 -0.0153*
(0.0068) (0.0081) (0.0070) (0.0083) Bank equity corr. 0.0051** 0.0113*** 0.0092*** 0.0134***
(0.0026) (0.0031) (0.0033) (0.0034) Linkages financial Banks’ foreign claims -0.0918** -0.0526 -0.0920* -0.0684
(0.0463) (0.0496) (0.0522) (0.0511)
real Trade -0.0132 0.0284 -0.0019 0.0446*
(0.0126) (0.0253) (0.0133) (0.0265)
non-fundamental
Stock market volatility 0.0459*** 0.0204** 0.0106 -0.0010 (0.0087) (0.0099) (0.0088) (0.0095)
CI 4.6056*** 3.0639***
(0.3480) (0.3542)
Interaction (×CI) Public debt 0.0134 0.0182**
(0.0088) (0.0088)
Country pairs 107 107 107 107
R2 0.05 0.27 0.09 0.29
48
Table 1.8:Regression analysis: robustness A
The table presents various robustness checks based on the preferred specification (IV) of Table 1.7. Specification (A-I) applies the Fisher z-transformation to the measure for sovereign credit risk co-movements in percent ( ˜ρijm= log(1 +ρijm)/(1−ρijm)). The transformed variable is used as dependent variable to mitigate the potentially skewed distribution of correlation coefficients. In specification (A-II) all explanatory variables are lagged by one period. In (A-III), computation of the contagion indicator (CI) is based on lower significance levels of 5%. Specification (A-IV) is based on a sample split considering only observations from November 2009 capturing the onset of the sovereign debt crisis in the Eurozone. Standard errors are clustered by country pair. The reported R2 is the R2 within. ∗∗∗,∗∗,∗ denote statistical significance at the 1%, 5%, and 10% levels respectively.
(A-I) (A-II) (A-III) (A-IV)
Fisher Z Lagged RHS CI (5%) Debt Crisis Similarity in economic
fundamentals
∆GDP 0.4205*** 0.1023*** 0.1616*** 0.1189***
(0.1070) (0.0363) (0.0389) (0.0411) Foreign reserves -0.0785 -0.0103 -0.0333* -0.0144
(0.0481) (0.0189) (0.0186) (0.0241) Banking system size 0.0002 0.0000 0.0001 0.0001**
(0.0002) (0.0001) (0.0001) (0.0000) Public debt -0.0360* -0.0201** -0.0145* -0.0274***
(0.0210) (0.0088) (0.0084) (0.0091) Bank equity corr. 0.0321*** 0.0069** 0.0129*** 0.0147***
(0.0082) (0.0035) (0.0032) (0.0037) Linkages financial Banks’ foreign claims -0.1994* -0.0538 -0.0677 0.1530**
(0.1212) (0.0434) (0.0505) (0.0763)
real Trade 0.1186* 0.0141 0.0425 0.0728***
(0.0672) (0.0202) (0.0278) (0.0273)
non-fundamental
Stock market volatility -0.0073 0.0311** 0.0093 -0.0039 (0.0257) (0.0125) (0.0129) (0.0123)
CI 7.8891*** 3.3189*** 3.2102*** 2.9011***
(0.9123) (0.3449) (0.4396) (0.4265) Interaction (×CI) Public debt 0.0433* 0.0192* 0.0142 0.0275**
(0.0231) (0.0104) (0.0098) (0.0111) Bank equity corr. -0.0341 0.0094 -0.0174* -0.0180*
(0.0229) (0.0090) (0.0103) (0.0095) Banks’ foreign claims 0.4062** 0.1534** 0.2715*** 0.0715
(0.2015) (0.0646) (0.1017) (0.0899)
Trade -0.1866*** 0.0020 -0.0737** -0.0388
(0.0682) (0.0290) (0.0358) (0.0501) Stock market volatility 0.2059*** 0.0091 0.0605*** 0.0034
(0.0512) (0.0208) (0.0218) (0.0453)
Observations 5,677 5,582 5,677 3,551
Country pairs 107 107 107 107
R2 0.28 0.28 0.28 0.19
Chapter 1: Sovereign Credit Risk Co-movements in the Eurozone
Table 1.9:Regression analysis: robustness B (Eurozone only)
The table presents robustness checks excluding non-Eurozone countries. Based on the smaller sample of Eurozone countries, specifications (B-I) and (B-II) are equivalent to specifications (III) and (IV) of Table 1.7. Specification (B-III) additionally includes the exchange rate (EUR/USD). Standard errors are clustered by country pair. The reported R2 is the R2 within. ∗∗∗,∗∗,∗denote statistical significance at the 1%, 5%, and 10% levels respectively.
(B-I) (B-II) (B-III)
EZ EZ EZ
Global controls %∆VDAX volatility 0.0223*** 0.0050
(0.0079) (0.0067) Banking system size 0.0047*** 0.0016 0.0030**
(0.0013) (0.0011) (0.0012) Public debt -0.0128 -0.0388*** -0.0149
(0.0103) (0.0139) (0.0107) Bank equity corr. -0.0006 0.0050 0.0042
(0.0054) (0.0050) (0.0049) Linkages financial Banks’ foreign claims -0.2435*** -0.1137** -0.1985***
(0.0473) (0.0462) (0.0416)
real Trade 0.0270* 0.0577 0.0402*
(0.0163) (0.0374) (0.0231)
non-fundamental
Stock market volatility 0.0871*** 0.0761** 0.0892***
(0.0329) (0.0387) (0.0323)
CI 4.2247*** 2.1607*** 4.3475***
(0.4502) (0.4288) (0.4318)
Interaction (×CI) Public debt 0.0187 0.0256 0.0235
(0.0150) (0.0158) (0.0154) Bank equity corr. 0.0098 0.0057 0.0032
(0.0199) (0.0158) (0.0189) Banks’ foreign claims 0.0481 0.1918** 0.0329
(0.0694) (0.0861) (0.0603) Trade -0.1239*** -0.1137*** -0.1164***
(0.0296) (0.0372) (0.0276) Stock market volatility -0.0264 0.0316 -0.0101
(0.0338) (0.0366) (0.0326)
Observations 2,311 2,311 2,311
Country pairs 44 44 44
R2 0.11 0.39 0.16
50