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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

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Type
Article accepté pour publication ou publié
Date
2014
Journal name
Journal of Macroeconomics
Volume
42
Publisher
Elsevier
Published in
Paris
Pages
38-51
Publication identifier
10.1016/j.jmacro.2014.07.001
Metadata
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Author(s)
Bruneau, Catherine

Delatte, Anne-Laure cc

Fouquau, Julien
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 / Keywords
Panel Smooth Threshold Regression Models; European sovereign crisis; Multiple equilibria; Self-fulfilling crisis; Credit default swap
JEL
E4 - Money and Interest Rates
F3 - International Finance
F4 - Macroeconomic Aspects of International Trade and Finance
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
H6 - National Budget, Deficit, and Debt
C23 - Panel Data Models; Spatio-temporal Models

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