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An investigation into feedback and spatial relationships between banks’ share prices and sovereign bond spreads during the euro crisis

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  • Gibson, Heather D.
  • Hall, Stephen G.
  • Petroulas, Pavlos
  • Tavlas, George S.

Abstract

We examine (1) spillover effects between euro-area sovereigns and banking systems within national jurisdictions and (2) cross-country spillovers among ten countries during the euro-area crisis. We find that cross-country spillovers substantially amplify the doom loops between the sovereign and banking sectors. We also provide a test that supports the hypothesis that cross-country spillovers among southern-euro-area countries were of a different order from the spillovers among northern-euro-area countries. Our results also imply that, if shocks are idiosyncratic, spillover effects may help in reducing the impact for northern countries.

Suggested Citation

  • Gibson, Heather D. & Hall, Stephen G. & Petroulas, Pavlos & Tavlas, George S., 2022. "An investigation into feedback and spatial relationships between banks’ share prices and sovereign bond spreads during the euro crisis," Journal of Financial Stability, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finsta:v:63:y:2022:i:c:s157230892200078x
    DOI: 10.1016/j.jfs.2022.101056
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    More about this item

    Keywords

    Euro area crisis; doom loops; cross-country spillovers; spatial estimation;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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