Breakup and default risks in the great lockdown

Andrea Consiglio, Nicola Borri, Giovanni Bonaccolto

Risultato della ricerca: Articlepeer review

Abstract

In this paper, we exploit CDS quotes for contracts denominated in different currencies and with different default clauses to estimate the risk of a breakup of the Eurozone and the propagation of breakup and default risks after the COVID-19 shock. Our main result is that the risk of a Eurozone breakup is significant although, quantitatively, it is not larger than in the period before the COVID-19 shock. In addition, we find that an increase in the redenomination risk in one country is associated with an increase in default premia and bond spreads in other Eurozone countries. Finally, we find that a sizeable fraction of the changes in the cost of insuring against redenomination and default reflects two additional factors: the first captures the insurance cost against a euro depreciation conditional on redenomination, while the second captures liquidity premia.
Lingua originaleEnglish
Numero di pagine15
RivistaJOURNAL OF BANKING & FINANCE
Stato di pubblicazionePublished - 2021

All Science Journal Classification (ASJC) codes

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  • ???subjectarea.asjc.2000.2002???

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