18 March 2015Time: 1:00 - 2:00pm
Venue: 4.04/08 Bancroft Building, Mile End Campus, E1 4NS
Professor Emmanuel Mamatzakis, University of Sussex
Are there any Animal Spirits behind the Scenes of the Greek Debt Crisis?
This paper reveals the underlying market's preferences over the on going Euro area sovereign debt crisis. It builds on a loss function with reference to the 'basis', the difference between the spread over swap and Credit Default Swap (CDS) for sovereign bonds. This loss function is general and flexible as it nests both a lin-lin and quad-quad functional form. The sample covers those Euro area member states most at risk of default namely: Greece, Portugal, Ireland, Spain and Italy. Results show that market's preferences for some Euro area countries, in particular Greece, have shifted towards pessimism post the Emergency Financing Mechanism (EFM) and troika. If anything, market's reading of Euro area debt crisis points to the direction of serious misalignments post EFM and troika fuelled by growing pessimism and thus uncertainty.
A link of a version of the paper is: https://ideas.repec.org/p/hel/greese/72.html