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Watch the indices! Derivatives and the Eurozone crisis

Subject

Economics

Authors / Editors

Portes R;Delatte A

Biographies

Publication Year

2014

Abstract

In retrospect, it is striking that the sovereign bond spreads of peripheral Eurozone countries surged while the economic conditions were gradually deteriorating. This column provides a new explanation for this phenomenon. It suggests that the markets in credit default swap indices have exacerbated shocks to economic fundamentals. The same change in fundamentals had a higher impact on the spread during the crisis period than it had previously.

Available on ECCH

No


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