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Econometrics 2019, 7(1), 5;

Information Flow in Times of Crisis: The Case of the European Banking and Sovereign Sectors

Tasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, Australia
School of Economics and Finance, Queensland University of Technology, Brisbane QLD 4000, Australia
Department of Economics, Macquarie University, Sydney 2109, Australia
Author to whom correspondence should be addressed.
Mardi Dungey passed away just as this manuscript was accepted for publication.
Received: 20 December 2017 / Revised: 10 December 2018 / Accepted: 11 January 2019 / Published: 17 January 2019
(This article belongs to the Special Issue Celebrated Econometricians: Peter Phillips)
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Crises in the banking and sovereign debt sectors give rise to heightened financial fragility. Of particular concern is the development of self-fulfilling feedback loops where crisis conditions in one sector are transmitted to the other sector and back again. We use time-varying tests of Granger causality to demonstrate how empirical evidence of connectivity between the banking and sovereign sectors can be detected, and provide an application to the Greek, Irish, Italian, Portuguese and Spanish (GIIPS) countries and Germany over the period 2007 to 2016. While the results provide evidence of domestic feedback loops, the most important finding is that financial fragility is an international problem and cannot be dealt with purely on a country-by-country basis. View Full-Text
Keywords: financial crises; diabolical loop; banking; sovereign debt financial crises; diabolical loop; banking; sovereign debt

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Dungey, M.; Hurn, S.; Shi, S.; Volkov, V. Information Flow in Times of Crisis: The Case of the European Banking and Sovereign Sectors. Econometrics 2019, 7, 5.

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