Economics, Econometrics and Finance
4 years ago

European countries hit hard by U.S. credit downgrade, CDS spreads surge.

International Review of Economics & Finance
The reaction of European credit default swap spreads to the U.S. credit rating downgrade
Benjamin M. Blau, Brian Roseman

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The study looked at how European credit default swap spreads changed after the U.S. credit rating was downgraded in 2011. They found that European countries' CDS spreads went up a lot during the ten days around the U.S. downgrade, especially for countries with lower GDP per capita and those using the EURO. This suggests that the U.S. downgrade made European countries more likely to default on their debts.