In this paper, we show that the comovement of bond yields in the EU before and during the European sovereign debt crisis is frequency-dependent. Using frequency cohesion and wavelet coherence, we demonstrate that the comovement is concentrated mainly at low frequencies. The comovement decreased...

While the use of public resources is critical to cushion the impact of the financial crisis on the euro-area economy, it is key that the entailed fiscal costs not be seen by markets as undermining fiscal sustainability. From this perspective, to what extent do movements in euro area sovereign...

This paper develops a model to interpret the 2012 eurozone crisis and the ECB's policy response. In the model, bank lending is distorted by debt overhang, banks hold sovereign bonds, and the government guarantees the bailout of bank creditors. A self-fulfilling pessimistic view of the economy...