I just ran 24.000 regressions: evidence on financial contagion in the Euro Area

Using daily data from 2002-2020, this study tests for contagion in the Eurozone using a binary stress indicator for extreme occurrences of sovereign bond yields. Contagion is evaluated by the significance of a country’s stress indicator in explaining other countries’ stress periods, controlling for push and pull factors in order to disentangle contagion from interdependence, and following Sala-i-Martin (1997) to obtain robust results. We find evidence of contagion, albeit diverging from the well-documented Eurozone core-periphery dichotomy, with relationships normutual nor exclusive. We find that Greece’s impact is not as widespread as expected, whileItaly’s gains traction across crises, alluding to “wake-up call” contagion