We discuss the origins of the Greek financial crisis as manifested in the growing fiscal and current-account deficits since euro-area entry in 2001. We then provide an investigation of spreads on Greek relative to German long-term government debt. Using monthly data over the period 2000 to 2010, we estimate a cointegrating relationship between spreads and their long-term fundamental determinants, and compare the spreads predicted by this estimated relationship with actual spreads. We find periods of both undershooting and overshooting of spreads compared to what is predicted by the economic fundamentals. JEL Classification: E63; G12
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The refereeing process of this paper has been coordinated by a team composed of Gerhard Rünstler, Kalin Nikolov and Bernd Schwaab (all ECB).
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AcknowledgementsWe would like to thank Dafni Giannikou for excellent research assistance. Additionally, thanks are due to Stephen Hall with whom we discussed issues related to the interpretation of the principal components and to Daphne Papadopoulou for discussions on monetary policy implementation.
Non-technical summaryThe systemic financial crisis which engulfed the global economy from 2008, along with the subsequent sovereign debt crisis in the euro area, has led to the need to reassess the relationship between financial conditions and real economic activity. Within the context of the Macroprudential Research Network (MaRs), organized by the ESCB, one of the three workstreams is devoted to examining this relationship and the channels through which it operates.A prior question which arises is how exactly financial conditions should be depicted within models. Traditionally, macroeconometric models include only an interest rate. However, during periods of financial stress, changes in interest rates alone may not suffice to capture all the interactions between the financial system and the real economy. Variables such as credit aggregates, survey data reflecting the supply of loans and their terms and conditions, volatility in financial markets and spreads between various assets in different risk classes can all convey additional information on financial conditions and, in turn, influence economic activity through their effect on consumption, savings, investment and exports.In this paper, we seek to construct indices of financial conditions for the euro area and for selected individual euro area countries, which can be used to explore further macro-financial linkages in the economy at large. We construct indices which both exclude and include
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TAKEOVER RISK AND THE MARKET FOR CORPORATE CONTROL: THE EXPERIENCE OF BRITISH FIRMS IN THE 1970S AND 1980SAndrew P Dickerson †, Heather D Gibson ‡# and Euclid Tsakalotos# January 1998 Abstract This paper investigates the determinants of takeovers in a large sample of UK quoted companies. We focus on the channels through which the market for corporate control monitors company performance and discretionary managerial behaviour. Our results indicate that the market for corporate control disciplines poorly performing companies, and that this effect is quantitatively important: a one standard deviation increase in profitability is associated with a fall in the conditional probability of takeover of over 20%. However, we find no evidence that firms without apparent profitable investment opportunities are more likely to be taken over if managers increase investment or reduce dividends, contrary to the predictions of the free cash-flow theory of takeovers.JEL Classification: L1, G3, C41
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