An Empirical Study On The Infective Effect And Transmission Channels Of European Debt Crisis

Generally financial crisis refers to a crisis in financial markets or financial institutions. In the 19 th century, there exist some cases that financial crisis spread to other countries. With the development of economic, we have been entering to infectious and destructive financial crisis era.At the beginning of twenty-first century, the United States broke the global subprime crisis making the global the economic downturn. Then, the Euro-zone crisis has slowly approached. With the process of crisis, more countries get into trouble and more problems generated. Based on the European sovereign debt crisis, this article uses SCI Index to measure whether the contagion happened or not and uses the global Moran’s I to examine the extent of financial contagion characterized by spatial gathering. Further using spatial panel model study the direct effects and indirect effects of contagion’s channel. Finally, SCI Index indicates that almost areas have weak contagions and small areas have moderate contagion relatively. Macroeconomic fundamentals have significant effect on financial contagion and the worsening of macroeconomic fundamentals will deepen financial contagion. Contagion has spatial dependence on trade; Liquidity risk has insignificant impact on contagion. Accordingly to direct and indirect effects, the direct effects of CPI, real effective exchange rate, international reserve and trade should be significantly positive, but spillover effects are both positive and negative. The direct and spillover effects of GDP growth should be positive theoretically, but direct effect is opposite in the results.After the empirical analysis in this paper, it is not only that euro-zone will be infected with this crisis, but also that other global countries are easily infected by the financial contagion.