"Causality and contagion in peripheral EMU public debt markets: a dynamic approach"

Our research aims to analyze the causal relationships in the behavior of public debt issued by peripheral member countries of the European Economic and Monetary Union (EMU), with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009. With this goal in mind, we make use of a database of daily frequency of yields on 10-year government bonds issued by five EMU countries (Greece, Ireland, Italy, Portugal and Spain), covering the entire history of the EMU from its inception on 1 January 1999 until 31 December 2010. In the first step, we explore the pair-wise causal relationship between yields, both for the whole sample and for changing subsamples of the data, in order to capture the possible time-varying causal relationship. This approach allows us to detect episodes of contagion between yields on bonds issued by different countries. In the second step, we study the determinants of these contagion episodes, analyzing the role played by different factors, paying special attention to instruments that capture the total national debt (domestic and foreign) in each country.Sovereign bond yields, causality, time-varying contagion, euro area, peripheral EMU countries. JEL classification:E44, F36, G15

Flatliners: Ideology and Rational Learning in the Diffusion of the Flat Tax

What factors explain the wave of adoption of the flat tax in Eastern Europe — a policy that was all but unmentionable in the rest of the world? We argue that, once the first few successes were underway, governments with liberal outlooks toward taxation adopted the reform through a process of rational learning: an often-radically new government will tend to adopt the policy based on successful implementation of its neighbors. Our contribution to the literature on the political economy of taxation is threefold. First, we show that, both theoretically and empirically, the existing work on taxation does not apply to the flat tax revolution in the post-communist countries. Second, we take into consideration the need and the difficulty of measuring ideology of Eastern European political parties. Third, we approach the issue of policy diffusion by explicitly modeling the different mechanisms that might underlie the process. We also find that the presence of other market-minded reforms do not predict adoption of the flat tax.

Are Free Trade Agreements Contagious?

This paper presents empirical evidence on the extent to which FTAs are gcontagioush, using empirical techniques inspired by the study of contagion in exchange rate crises. Applying a series of different econometric techniques, it tests the null hypothesis that the signing of an FTA between one nationfs trade partners has no affect on the probability of the nation signing a new FTA. The hypothesis is tested against other political, economical and geographical determinants of the FTA formation previously stated in the literature, finding evidence that the contagion phenomenon is present in different specifications and samples.Contagion Effect, Free Trade Agreements and International Trade

Are Free Trade Agreements Contagious?

This paper presents empirical evidence on the extent to which FTAs are "contagious", using empirical techniques inspired by the study of contagion in exchange rate crises. Applying a series of different econometric techniques, it tests the null hypothesis that the signing of an FTA between one nation's trade partners has no affect on the probability of the nation signing a new FTA. The hypothesis is tested against other political, economical and geographical determinants of the FTA formation previously stated in the literature, finding evidence that the contagion phenomenon is present in different specifications and samples.Contagion Effect, Free Trade Agreements and International Trade

Causality and contagion in peripheral EMU public debt markets: a dynamic approach

Our research aims to analyze the causal relationships in the behavior of public debt issued by peripheral member countries of the European Economic and Monetary Union -EMU-, with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009. With this goal in mind, we make use of a database of daily frequency of yields on 10-year government bonds issued by five EMU countries -Greece, Ireland, Italy, Portugal and Spain-, covering the entire history of the EMU from its inception on 1 January 1999 until 31 December 2010. In the first step, we explore the pair-wise causal relationship between yields, both for the whole sample and for changing subsamples of the data, in order to capture the possible time-varying causal relationship. This approach allows us to detect episodes of contagion between yields on bonds issued by different countries. In the second step, we study the determinants of these contagion episodes, analyzing the role played by different factors, paying special attention to instruments that capture the total national debt -domestic and foreign- in each country

spatial regression models to improve p2p credit risk management

Calabrese et al. (2017) have shown how binary spatial regression models can be exploited to measure contagion effects in credit risk arising from bank failures. To illustrate their methodology, the authors have employed the Bank for International Settlements' data on flows between country banking systems. Here we apply a binary spatial regression model to measure contagion effects arising from corporate failures. To derive interconnectedness measures, we use the World Input-Output Trade (WIOT) statistics between economic sectors. Our application is based on a sample of 1185 Italian companies. We provide evidence of high levels of contagion risk, which increases the individual credit risk of each company

Risk Spillovers and Interconnectedness between Systemically Important Institutions

In this paper, we gauge the degree of interconnectedness and quantify the linkages between global and other systemically important institutions, and the global financial system. We document that the two groups and the financial system become more interconnected during the global financial crisis when linkages across groups grow. In contrast, during tranquil times linkages within groups prevail. Global systemically important banks (G-SIBs) contribute most to system-wide distress but are also most exposed. There are more links coming from G-SIBs to other systemically important institutions (O-SIIs) than the other way around, confirming the role of G-SIBs as major risk transmitters in the financial system. The two groups and the global financial system tend to co-vary for periods up to 60 days Prior to their official designation as G-SIBs or O-SIIs, the prevalent news sentiment about these institutions (we measure with a textual analysis) was negative. Importantly, the systemic importance and exposure of G-SIBs and O-SIIs is perceived differently by the Financial Stability Board (FSB) and the European Banking Authority (EBA)

Regional Disparities in the European Union: Convergence and Agglomeration

Economic disparities between the regions of the European Union are of constant concern both for policy and economic research. In this paper we examine whether there are overlapping trends of regional development in the EU: overall convergence on the one hand and persistent or even increasing spatial concentration (agglomeration) on the other. Kernel density estimation, Markov chain analysis and cross-sectional regressions provide evidence that convergence of regional per-capita income in the EU15 has become considerably stronger in the 1990s. The reduction of income disparities, however, is a phenomenon between nations but not between regions within the EU countries. European integration (and possibly European regional policy) foster the catching-up of lagging countries but at the same time forces for agglomeration of economic activities tend to increase disparities within the EU member states. Obviously, the productive advantages of spatial proximity do not vanish in the knowledge economy. --Regional growth,agglomeration,Markov chains