Central Bank of Ireland, European Commission, ESM Joint Research Seminar

Central Bank of Ireland / ESM: “Euro area tail interdependencies and liquidity shortages: A high-frequency investigation”

European Commission: “A European safe asset to complement national government bonds”

The European sovereign debt crisis had features consistent with “self-fulfilling” dynamics. However, there is little direct empirical evidence documenting how liquidity shortages contribute to self-fulfilling crises and no formal assessment of whether policy responses can mitigate these effects. The first paper (CBI / ESM) utilises high-frequency data of extreme events to demonstrate significant tail interconnectedness in the German and Italian sovereign bond markets, providing strong evidence that liquidity contractions remain a potentially destabilising influence. Destabilising flights into/out of national sovereign bond markets are one of the motivations for a European Safe Asset. However, there are many competing proposals for what such an asset should look like. The second paper (EC) examines the merits of “E-bonds” and finds that a streamlined construction could achieve the needed scale and creditworthiness to become the main safe asset in the euro area.

This is an ESM research internal seminar. If you would like to attend, please write an email to ESMresearch@esm.europa.eu.