Fragmentation in the European Monetary Union: Is it really over?

Candelon, Bertrand;Luisi, Angelo;Roccazzella, Francesco
(2021) , 49 pages

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Authors
  • Candelon, BertrandUCLouvain
    Author
  • Luisi, AngeloUCLouvain
    Author
  • Roccazzella, FrancescoUCLouvain
    Author
Abstract
Sovereign bond market fragmentation represents one of the major challenges European authorities have had to tackle since the outburst of the euro area debt crisis in 2010. By investigating the inter-country shock transmission through a new methodology that reconciles Factor and Global Vector Autoregressive models, we first show that fragmentation risk well preceded the sovereign debt crisis outburst. Most importantly, by analyzing the recent period, we document a rise in fragmentation risk in the euro area during the COVID pandemic. This rise, connected to the pressure on public debts and deficits due to the pandemic period, questions the European integration process and calls for early measures to avoid a new sovereign debt crisis.
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Candelon, B., Luisi, A., & Roccazzella, F. (2021). Fragmentation in the European Monetary Union: Is it really over? (LIDAM Discussion Paper LFIN 2021/15). https://hdl.handle.net/2078.5/111814