Spillovers across European sovereign credit markets and role of surprise and uncertainty

Abstract

We identify the network structure of spillovers and time-varying spillover intensities across European sovereign credit markets proposing a novel Copula-Granger causality based structural vector auto-regressive (SVAR) approach. Via the proposed framework, we examine the topological and time-varying spillover and contagion between 13 European credit markets, which is found to be consistent with crisis events. The heterogeneity in directional impacts could be useful in revealing contagion effects across the credit markets. We also find that newly proposed surprise and uncertainty indexes, among other macro-economic variables, significantly explain the spillover dynamics.