Was the European sovereign crisis self-fulfilling? Empirical evidence about the drivers of market sentiments
Bruneau, Catherine; Delatte, Anne-Laure; Fouquau, Julien (2014), Was the European sovereign crisis self-fulfilling? Empirical evidence about the drivers of market sentiments, Journal of Macroeconomics, 42, p. 38-51. 10.1016/j.jmacro.2014.07.001
TypeArticle accepté pour publication ou publié
Journal nameJournal of Macroeconomics
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Abstract (EN)We investigate the presence of self-fulfilling dynamics during the European sovereign crisis in the light of a theoretical model that we bring to the data. Our empirical framework allows us to empirically test the presence of self-fulfilling dynamics and to identify what may have driven the market sentiment during this crisis. To do so we estimate the probability of default of five European “peripheral” countries during January 2006 to September 2011 with a panel smooth threshold regression. Our estimation results suggest that (1) both the fundamentals and “animal spirit” ignited the European sovereign crisis; (2) we isolate the risk indicator through which investors’ belief coordinate.
Subjects / KeywordsPanel Smooth Threshold Regression Models; European sovereign crisis; Multiple equilibria; Self-fulfilling crisis; Credit default swap
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