The Effects of the Sovereign Debt Crisis on EU Portfolio Flows

We propose to exploit a unique feature of the recent financial crisis (its transformation into a sovereign debt crisis) in order to identify and quantify its effects on bank asset holdings and overall portfolio holdings. Using a Difference-in-Differences approach, we will define the “treatment” (countries under sovereign crisis/Eurozone) and “control” groups, and explore the quantitative implications of the recent debt crisis on bank holdings and overall portfolio holdings. Emphasis will be placed on the definition of the “treatment” group (either narrow including only four countries -Greece, Ireland, Spain, Portugal- or wider including also countries that face fiscal adjustment issues). In addition, special attention will be paid on issues related to endogeneity by means of IV estimators. The differences in terms of institutional quality across countries and their interactions with the crisis will also be taken into account by our analysis.

This project was evaluated and funded as part of the Foundation’s effort to support research teams with all their members being under 40 years old.