Department of Economics and Business Economics

The Walking Debt Crisis

Research output: Working paper/Preprint Working paperResearch


  • rp17_06

    Final published version, 811 KB, PDF document

  • Tobias Basse, Norddeutsche Landesbank Girozentrale, Germany
  • Robinson Kruse
  • Christoph Wegener, Ipag Business School and Center for Risk and Insurance, France
This article sheds light on the question whether arising sovereign credit risk in the EMU has been triggered by the US subprime crunch. By adapting recent econometric methodologies suggested in the related field of speculative bubbles, we find clear evidence for fast diverging (and even explosive) behavior of EMU government bond yields of peripheral countries relative to Germany during the financial and the European debt crisis. This might be caused by flight-to-quality effects to German government bonds coincident with the collapse of Lehman Brothers and by a loss of confidence in the fiscal stability of Greece, Ireland, Italy, Portugal and Spain during the European debt crisis. First, we find compelling evidence for bubbles in the Dow Jones Equity Real Estate Investment Trust (REITs) index which serves as a weekly measure of economic activity in the North American real estate sector. Second, in our main analysis, we test whether the collapsing bubble in the housing market triggered the diverging government bond yields during two crisis regimes. Our findings indicate that this was the case in the course of the financial, but not during the EMU sovereign debt crisis. These results suggest that the severe fiscal

problems in peripheral countries are homemade rather than imported from the US.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages41
Publication statusPublished - 31 Jan 2017
SeriesCREATES Research Papers

See relations at Aarhus University Citationformats

Download statistics

No data available

ID: 108719505