Working Paper: CEPR ID: DP9043
Authors: Roel Beetsma; Massimo Giuliodori; Frank de Jong; Daniel Widijanto
Abstract: We investigate how "news" affected domestic interest spreads vis-à-vis Germany and how it propagated to other countries during the recent crisis period, thereby distinguishing between the so-called GIIPS countries and other European countries. We make original use of the Eurointelligence newsflash to construct news variables based on the amount of news that is released on a country on a given date. We find that more news on average raises the domestic interest spread of GIIPS countries since September 2009. In addition, we find that it leads to an increase in the interest spreads of other GIIPS countries. The magnitude of the news effects is related to cross-border bank holdings. A split of news into bad and good news shows that the upward pressure on domestic and foreign interest spreads is driven by bad news. We also find spill-overs of bad news from GIIPS countries onto non-GIIPS countries. However, the magnitude of these spill-overs is substantially smaller than that to other GIIPS countries.
Keywords: comovement; eurointelligence; GIIPS; interest rate spreads; new variables; non-GIIPS; spillovers
JEL Codes: E62; G01; G12; G15; H61; H62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| more news about a GIIPS country (F38) | increase in its domestic interest spread relative to Germany (F49) |
| bad news from GIIPS countries (F65) | increase in interest spreads in other GIIPS countries (F65) |
| bad news from GIIPS countries (F65) | increase in interest spreads in non-GIIPS countries (F65) |
| increase in news intensity (G14) | increase in interest spread (E43) |