Decoupling and Contagion: The Special Case of the Eurozone Sovereign Debt Crisis

摘要

This paper demonstrates that the Eurozone sovereign debt crisis constitutes a special case in the contagion literature with general implications. Perfectly correlated bond markets imply that contagion can only occur if there is a decoupling to lower correlation levels with increased idiosyncratic shocks leading to more severe but less systemic spillovers. This theoretical prediction is fully supported by the empirical analysis. We also show that dynamic coexceedance estimates provide a more robust and more general picture of contagion than correlation-based tests. Coexceedances identify only one major incidence of contagion that affected five periphery Eurozone countries in May 2010 and coincided with flight to quality from the periphery to the core and the 2010 "flash crash" in US equity markets.