Causality and contagion in EMU sovereign debt markets

•We offer an operational definition of contagion.•We test for Granger-causal relationships between EMU sovereign bond yields.•We endogenously determine the breakpoints in the evolution of those relationships.•The number and intensity of causal relationships increase after an endogenous shock.•We provide evidence of contagion in the aftermath of the euro debt crisis.

This paper contributes to the literature by applying the Granger-causality approach and endogenous breakpoint test to offer an operational definition of contagion to examine European Economic and Monetary Union (EMU) countries public debt behavior. A database of yields on 10-year government bonds issued by 11 EMU countries covering fourteen years of monetary union is used. The main results suggest that the 41 new causality patterns, which appeared for the first time in the crisis period, and the intensification of causality recorded in 70% of the cases provide clear evidence of contagion in the aftermath of the current euro debt crisis.