Year: 2012
Author: Breuer, Arne, Sauter, Oliver
Applied Economics Quarterly, Vol. 58 (2012), Iss. 1 : pp. 1–18
Abstract
We use quanto credit default swaps to analyse the impact of a credit event in the Eurozone on the Dollar-Euro exchange rate. In light of the European debt crisis, market participants are willing to pay more for protection against a sovereign credit event if it is denominated in US Dollars rather than in Euro, because they expect the Euro to depreciate in the wake of the credit event. We use this CDS price difference to calculate the implied exchange rate conditional on a credit event, i.e., the default of a member of the Euro zone. We find that the implied effect is heterogeneous across the different countries. We identify three country groups for which the implied effect on the exchange rate develops similarly over the time horizon of our data set.
JEL Classification: E6, F3, G1, G2
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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/10.3790/aeq.58.1.1
Applied Economics Quarterly, Vol. 58 (2012), Iss. 1 : pp. 1–18
Published online: 2012-01
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 18
Author Details
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Quanto CDS Spreads
Lando, David | Bang Nielsen, AndreasSSRN Electronic Journal , Vol. (2018), Iss.
https://doi.org/10.2139/ssrn.3268890 [Citations: 3] -
The Incomplete Currency: The Future of the Euro and Solutions for the Eurozone
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