Financial contagion among new member states of the European Union: Granger causality approach
ENThis paper examines the contagion effect on the sovereign debt markets of new member states (NMS) of the European Union, PIIGS and three core EMU economies (France, Germany, the United Kingdom) from May 2004 to December 2014. The analysis investigates interdependence by utilizing Granger causality method to estimate the connectivity as mutual relationship between NMS and some EMU countries. Furthermore, the dynamic approach to assess the degree of Granger causality within the 81 pairs of government bond yields, in order to define periods of strengthening interaction among the countries, which associated with contagion. The estimations confirm that the contagion effect is not influential in the risk-off period throughout all the analyzed countries but significantly strengthen during the crisis. Therefore, findings of time-varying nature of causal relationships underline that government bond yields were much more triggered by PIIGS than 3 core EMU countries assessing the full analysis period.
