Working Paper: CEPR ID: DP8497
Authors: Francis Vitek; Tamim Bayoumi
Abstract: This paper analyzes past and possible future spillovers from the Euro Area Sovereign Debt Crisis, both within the Euro Area and to the rest of the world. This analysis is based on a structural macroeconometric model of the world economy, disaggregated into fifteen national economies. We find that macroeconomic and financial market spillovers have been small outside of countries with high trade or financial exposures, but that they could become large if severe financial stress were to spread beyond Greece, Ireland and Portugal.
Keywords: contagion; euro area sovereign debt crisis; panel; unobserved components model; spillovers
JEL Codes: E44; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| if severe financial stress were to spread beyond Greece, Ireland, and Portugal (F65) | spillovers could become significant (F69) |
| financial stress spreads to Spain (F65) | potential macroeconomic spillovers could generate large output losses (F41) |
| limited scope for monetary policy responses to mitigate spillovers (F42) | necessitates decisive fiscal and financial measures (E62) |
| macroeconomic and financial market spillovers have been small outside of countries with high trade or financial exposures (F41) | cumulative output losses from the crisis for other EU member states (F65) |