The risk of the sovereign debt default: the Eurozone crisis 2008–2013
Authors: Stamatopoulos, Theodoros 
Terzakis, Dimitrios 
Arvanitis, Stavros 
Issue Date: 15-Aug-2017
Journal: Applied Economics 
Volume: 49
Issue: 38
Keywords: Credit default swaps spreads, Euro debt crisis, Fragility hypothesis of the Eurozone, Self-fulfilling expectations, Sovereign risk to default
Abstract: 
We investigate the relationship of the market pricing of sovereign risk to default, through credit default swap (CDS) spreads for 16 Eurozone countries during 2008q1–2013q3. We take into account, through appropriate non-linear generalized method of moments (GMM) estimations the endogeneity problem. We focus on ‘fiscal space’ (DEBT or FISCAL), and the downgrade announcements (DOWN). We find DEBT (FISCAL) to have significant (insignificant) effects on the CDS concave function, as well as, DOWN in a linear one. It has also been confirmed significant pricing discrimination between South and West Euro Area Periphery (SWEAP) and the core Eurozone, highlighting asymmetries discovered either by the respective size of estimated DEBT coefficients or by the significant effects of DOWN that have only on CDS of SWEAP countries. The current account balance or the inflation rate, as well as, relevant interaction terms seem not to affect the spreads of the EMU. These findings, together with the estimated structural change on CDS pattern in early 2011, coinciding with significant either the DOWN in the pre-crisis period (2008–2010) or the DEBT in the post-crisis one (2011–2013) on the CDS, seem to be consistent with self-fulfilling crises literature and the inherent vulnerability of EMU, on other words, the ‘fragility hypothesis of the Eurozone’.
ISSN: 14664283
00036846
DOI: 10.1080/00036846.2016.1267851
URI: https://uniwacris.uniwa.gr/handle/3000/1224
Type: Article
Department: Department of Accounting and Finance 
School: School of Administrative, Economics and Social Sciences 
Affiliation: University of West Attica (UNIWA) 
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