This paper proposes a new mutual exciting regime-switching model where crises can spread contagiously across countries. Each country has its own hidden stochastic process that determines whether it is in a normal or crisis regime. The mutual-excitation component allows interactions in the Markov...

We test whether the sharp increase in sovereign spreads of Euro area countries with respect to Germany observed after the burst of the Greek crisis on October 2009 is due to a deterioration of the macroeconomic and fiscal scenarios, or to some form of financial contagion. More in detail, we...

We test whether the sharp increase in sovereign spreads of euro area countries with respect to Germany after the explosion of the Greek crisis was due to deteriorating macroeconomic and fiscal fundamentals or to some form of financial contagion. Our analysis includes indicators of domestic and...

This paper explores the impact of the European debt crisis on the valuation of sovereign debt in the euro area in a structural model that merges a sovereign country's stock market, CDS market, and its national finances. By estimating the model over the period from July 2007 to April 2012 using...

During the last crisis, developed economies' sovereign Credit Default Swap (hereafter CDS) premia have gained in importance as a tool for approximating credit risk. In this paper, we fit a dynamic factor model to decompose the sovereign CDS spreads of ten OECD economies into three components: a...