The Research About European Sovereign Debt Crisis Contagion

In October2009, as the Greece’s debt problems emerged, the euro zone countries have financial problems one by one, among the euro countries, the four countries (Greece, Portugal, Spain, Italy) are particularly acute. In2013, the European debt crisis calm for a period of time, but the problem in Cyprus may makes the European debt crisis emerge once again.The debt crisis occurring in euro zone may be due to national fiscal policy and it may be also due to the crisis infection. Then it is necessary to detect the presence of contagion effects, which helps these countries develop measures to control and reduce the contagion effect. The implementation of effective crisis management is very important. In this paper, we do the studies about whether the contagion effect among the four European countries (Greece, Portugal, Spain, Italy) exists.In this paper, the framework consists four parts. The first part describes the background, the status, the issues related to this study, and the theoretical and practical significance of the research. The second part provides an overview of the financial crisis contagion effects and test methods. The third section describes the Time-varying Copula based on the half parameters marginal distribution model. We respectively illustrate the relevant theoretical knowledge about the non-parametric kernel density estimation, Copula functions and Time-varying Copula functions. Furthermore, we do the empirical analysis based on the Time-varying Copula functions. The fourth part describes the theoretical knowledge about the Pair Copula model. Then, based on the results of the third part of the analysis, using Pair Copula method we estimate the dependence structure among multivariate, exploring debt crisis contagion among four European countries.For the empirical section, we study the10-year yields in four European countries (Greece, Portugal, Spain, Italy). Six static Copula functions and four Time-varying Copula function model were estimated using the non-parametric kernel density estimation method ML. Through the fitness test, time-varying SJC Copula function describes the dependence structure between the variables is more accurate. Through the time-varying correlated coefficient estimated by Time-varying SJC Copula function and the change point detecting of BP structure, the debt crisis contagion exists between Greece and Italy, and there is no significant contagion effects between Greece and Portugal,Spain. There is a significant contagion effect between Portugal and Spain, Italy. Finally, according to the results of BP structural change point detection, the Treasury yields is divided into four sections. Pair Copula function model is used to study Treasury yields sequence segmentation modeling of the four European countries, studying the high-dimensional dependency structure and testing the the contagion effects of the crisis according to the changing of dependency structure. The results show that under the premise of the Greek debt crisis, the Greek infection lonely has a limited impact on the debt crisis in other countries, while in the case of the Portugal and Spain debt crisis outbreak, there is a significant contagion effect between Greece and Italy. The results explain multivariate dependence is closer to the truth, and more comprehensively characterize the contagion effects. The conclusion is very important for different countries choosing a reasonable aid programs and policy interventions.