Gauging potential sovereign risk contagion in Europe

This study adopts the CoVaR methodology to analyse the tail risk relationships among European sovereigns, which provide arguably important information for policymakers to identify countries that should come under close scrutiny during the current debt crisis.

► This study gauges the potential contagion of sovereign risk in the euro area. ► Tail risk relationships among European sovereigns are estimated in terms of CoVaRs. ► CoVaR is a measure of risk conditional upon an adverse shock. ► The estimates can help policymakers identify vulnerable countries.