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International Monetary Fund (Arezki), University of Maastricht (Candelon) and International Monetary Fund (Sy). We thank David Romer, Qiang Chen and Nico Valckx for helpful comments as well as participants at the 4th annual meeting of the MIFN in Jinan, China and seminar participants at the IMF Institute, University of Orleans and CESifo. We thank Sandrine Albin-Weckert for editorial assistance, Ning Fu and Ermal Hitaj for research assistance.
It has been stimulated by the first and second banking directive in 1977 and 1985. BIS (2010) provides figures on cross-border holding across countries.
This is shown to be equivalent to other empirical approach to identify contagion as documented in Dungey et al. (2004)
Mora (2006) among others provides evidence of delayed sovereign rating announcements of credit rating agencies in the context of the Asian crisis. White (2010) provides an excellent overview of the literature on credit rating agencies including on the evidence of their sluggishness in making corporate rating announcements in the US.
Gande and Parsley (2004) constitutes a reference for such an approach applied to sovereign debt market.
The impulse dummy is 1 at time t and zero otherwise.
Engle and Granger (1987) showed that considering a VAR in difference while there exists one or more cointegration relationships would result in biases in the estimators.
The optimal lag order of the model is fixed to one as suggested by the BIC information criterion.
As these countries share the same currency namely the Euro, the exchange rate cannot constitute a transmission channel for the news. Hence, the foreign exchange market is not included in our system of financial markets.
The results of the cointegration tests are available from the authors upon request.
These results are available from the authors upon request
Testing for the existence of threshold effects or more generally exploiting the rating scale is rendered uneasy given the concentration of rating grades in European countries. Indeed, there was no downgrade to speculative grade during the period under consideration.
In 2009, the Basel Committee revised its risk-based capital framework so as to strengthen it. For instance, it introduced operational criteria to require banks to undertake independent analyses of the creditworthiness of their securitization exposures.
In the US, this is illustrated by the threat by a credit rating agency to downgrade AIG in September 2008 which led to multiple collateral calls, increased liquidity stress, and falling market confidence.
Peripheral European countries comprise Baltic states and Central Asian countries.
These tables of results are available from the authors upon request.