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Economics 2012Contagion Effect of Greek Debt Crisis Contagion effect of Greek debt crisis Page 1
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Economics 2012 Table of Contents1.Introduction ............................................................................................................................................... 6 1.1 Greek Debt Crisis.............................................................................................................................................. 6 1.2 Trade in Euro Region........................................................................................................................................ 6 1.3 Previous Observations ..................................................................................................................................... 62. Methodology ............................................................................................................................................. 8 2.1 Research Framework ...................................................................................................................................... 8 2.2 Type of Research.............................................................................................................................................. 9 2.3 Primary scales used in SPSS analysis................................................................................................................ 9 2.4 Analysis tool used ............................................................................................................................................ 9 2.4.1.VAR Analysis.............................................................................................................................................. 9 2.4.2 Linear Regression Analysis ...................................................................................................................... 10 Names for X and Y ............................................................................................................................................ 11 2.4.3.Correlation Analysis ................................................................................................................................ 13 2.4.4.Descriptive statistics ............................................................................................................................... 14 2.4.5.Graphical Analysis ................................................................................................................................... 15 2.5 Software package/ tools used........................................................................................................................ 153. Sources of Data........................................................................................................................................ 16 3.1 Secondary data: ............................................................................................................................................. 16 3.2 Nature of Sampling ....................................................................................................................................... 16 Probability Sampling: ....................................................................................................................................... 16 3.3 Sampling Type ................................................................................................................................................ 16 Fixed Sampling: ................................................................................................................................................ 16 3.4 Sample Size .................................................................................................................................................... 16 3.5 Target Sample ................................................................................................................................................ 17 3.6 Data Collection Methods ............................................................................................................................... 17 Stage:1 ............................................................................................................................................................. 17 Stage:2 ............................................................................................................................................................. 17 Stage:3 ............................................................................................................................................................. 17 3.7 Data Collected and Sources ........................................................................................................................... 17 Contagion effect of Greek debt crisis Page 2
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Economics 2012 Table of Contents4. Analysis and Results ................................................................................................................................ 18 4.1 Focus of analysis ............................................................................................................................................ 18 4.2 Analysis of Data set-1..................................................................................................................................... 18 4.2.1 Multiple Regression Analysis .................................................................................................................. 19 4.2.2 Results of regression analysis ................................................................................................................ 23 4.2.3 Correlation Analysis .................................................................................................................................... 24 4.2.4 Results of correlation analysis ................................................................................................................ 26 4.2.5 Descriptive Statistical analysis .................................................................................................................... 26 4.2.6 Results of Descriptive Statistics .............................................................................................................. 27 4.2.7 VAR ( Vector autoregressive regression Analysis ) ................................................................................. 27 4.3 Government Debt to GDP .............................................................................................................................. 29 4.4 Analysis of Data set- II.................................................................................................................................... 29 4.4.1 Multiple Regression Analysis .................................................................................................................. 30 Variables Entered/Removed(b) ....................................................................................................................... 30 4.4.2 Results of regression analysis ................................................................................................................. 34 4.4.3 Correlation Analysis ................................................................................................................................ 35 4.4.4 Results of correlation analysis ............................................................................................................... 35 4.4.5 Descriptive Statistics for Debt to GDP. ................................................................................................... 36 4.4.6 Results of Descriptive Statistics .............................................................................................................. 36 4.4.7 Country wise Correlation Coefficient trend ............................................................................................ 385. Key Observations ..................................................................................................................................... 39 5.1 Observations and Findings ............................................................................................................................. 396. Conclusion ............................................................................................................................................... 407. Appendix - 1 ............................................................................................................................................ 418. Appendix - 2 ............................................................................................................................................ 429.Glossary ................................................................................................................................................... 4310. References............................................................................................................................................. 46 Contagion effect of Greek debt crisis Page 3
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Economics 2012 List of TablesTable No Title Page NoTable 2.1 Regression X-Y table 11Table 2.2 Software package/tools used 15Table 4.1 General government net debt in Billions (1996-2004) 18Table 4.2 General government net debt in Billions (2005-2012) 19Table 4.3 Spss Output : Variable Entered 20Table 4.4 Spss Output : Model Summary 20Table 4.5 Spss Output: Annova 21Table 4.6 Spss Output: Coefficients 21Table 4.7 Spss Output: Correlation matrix 24,25Table 4.8 Spss Output: Descriptive Statistics 27Table 4.9 Forecasted Govt net Debt value ( 2012 - 2017 ) 29Table 4.10 Government Debt to GDP 29Table 4.11 Spss Output : Variable Entered 30Table 4.12 Spss Output: Annova 30Table 4.13 Spss Output: Coefficients 31Table 4.14 Spss Output: Excluded variables 31Table 4.15 Excel Spreadsheet Output : Correlation Matrix 34Table 4.16 Spss Output: Descriptive Statistics 35 Contagion effect of Greek debt crisis Page 4
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Economics 2012 List of Figures/Charts Chart No Title Page NoFigure 2.1 Research Frame work 8Chart 1.1 Euro Area Sovereign Bond Yield 7Chart 2.1 VAR Analysis example 10Chart 2.2 Regression Analysis Example 12Chart 2.3 Correlation Analysis Example 13Chart 4.1 Partial Regression Plot : Greece- Belgium 22Chart 4.2 Partial Regression Plot : Greece- Italy 22Chart 4.3 Partial Regression Plot : Greece- Netherland 22Chart 4.4 Partial Regression Plot : Greece- Portugal 22Chart 4.5 Partial Regression Plot : Greece- Spain 22Chart 4.6 Partial Regression Plot : Greece- Finland 22Chart 4.7 VAR Analysis 28Chart 4.8 Partial Regression Plot : Greece- Germany 32Chart 4.9 Partial Regression Plot : Greece- Netherland 32Chart 4.10 Partial Regression Plot : Greece- Portugal 32Chart 4.11 Partial Regression Plot : Greece-Spain 32Chart 4.12 VAR Analysis 36Chart 4.13 Country wise correlation coefficients graph 37 Contagion effect of Greek debt crisis Page 5
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Economics 2012 1.Introduction1.1 Greek Debt CrisisEuro debt crisis is currently one of the major financial crisisthat has affected entireglobe.Euro debt crisis initially started in Greece when government borrowings went upwiththe inability to repay the debt amount leading to severe debt crisis in Greece. As of nowGreece is having the highest debt to GDP ratio in Europe and second in globe. Butgradually within a short span Greece debt crisis have passed away its financialshockwaves to its neighboring countries that have led to economicslowdown in entireEurozone. This crisis had impacted globally.This study reveals that other euro countries are also affected by Greek debt crisisandhence it is contagion.1.2 Trade in Euro RegionThe nature of trade in Euro countries makes it more vulnerable to global crisis whenone/few countries undergo financial instability. The fiscal,monetary and forex exchangepolicy are standardized over entire euro area and regulated uniquely so that the wholeEurozone is benefitedout of the trade but when the conditions are adverse, again the sameEurozone is deeply affected.The complex chain of commercial banks and governmentlending’s influences one country to lend other and again borrow it back from them is acyclic process leading to cob web network of government transaction in debt andgovernment bonds. When one country would undergo a crisis , than this cycle breaks anddue to the robust network of such transactions, several banks gets affected further affectingthe financial stability of central government.1.3 Previous ObservationsA financial research done concluded that that Greece debt crisis have infected othercountries by negatively influencing the market. The research suggested that 4 out 6countries observed, Portugal,Spain,Italy and Belgium were contagionto Greece economy.Also it mentioned that countries like Portugal and Spain were affected by lower creditratings made by credit rating agencies.However this research is being concluded throughdata available upto 2010. Contagion effect of Greek debt crisis Page 6
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Economics 2012 Chart 1.1In case of our research we too had similar conclusion, however we have included 10countries in our sample for close observation with data available till 2012. Also futurescenarios have been forecasted using standard statistical tools.References : Sabastian Misso,Sabastian Watzka, (Aug 2011), “Financial Contagion andEuropean Debt Crisis",Ludwig Maximilian - University of Munich, pp.2-4 Contagion effect of Greek debt crisis Page 7
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Economics 2012 2.Methodology2.1 Research Framework Figure:2.1 Contagion effect of Greek Debt CrisisProblem Definition 1. To identify whether Euro Economy is contagion to Greek Debt crisis or not 2. Which countries in Euro Zone are most likely to be effected by Greek debt crisis?Research Objectives 3. To design a cause effect relationship/X-Y/ statistical equation to prove relationship betweenGreek Debt CrisisandDebt crisis in Euro countries. Research Design Causative Research: How Greek Debt crisis will affect Economy of other countries. Secondary Data from Journals & websites Source of Data Online Journals and review of literature Data Collection Government & IMF Financial data Data Analysis 1. VAR Analysis 2. Linear Regression Analysis (Primary) 3. Correlation Analysis 4. Descriptive statistics 5. Graphical Analysis Report Contagion effect of Greek debt crisis Page 8
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Economics 20122.2 Type of ResearchCausal Research:It is done to establish a cause and effect relationship between Greek Debtcrisis and its impact on debt crisis of other economy.2.3 Primary scales used in SPSS analysis 1. Nominal Scale: This serves only as labels or tags for identifying and classifying objects. In this research,name of countries are part of nominal scale. 2. Ratio Scale : Numerically equal distances on the scale represent equal values in the characteristic being measured. In this research, Government net GDP andGovernment Debt to GDP ratio is being taken in ratio scale.2.4 Analysis tool used2.4.1.VAR AnalysisVector auto regression (VAR) is a statistical model used to capture the linearinterdependencies among multiple time series. VAR models generalizes the univariate autoregression (AR) models. All the variables in a VAR are treated symmetrically; each variablehas an equation explaining its evolution based on its own lags and the lags of all the othervariables in the model. A VAR model describes the evolution of a set of k variables (called endogenousvariables) over the same sample period (t = 1, ..., T) as a linear function of only their pastevolution. The variables are collected in a k × 1 vector yt, which has as the ith element yi,t thetime t observation of variable yi. For example, if the ith variable is GDP, then yi,t is the value ofGDP at t.A (reduced) p-th order VAR, denoted VAR(p), is2.4.1.1 Multivariate Time Series DataOften, the first step in creating a multiple time series model is to obtain data. There are twotypes of multiple time series data: Response data. Response data corresponds to yt in the multiple time series models defined in Types of VAR Models. Contagion effect of Greek debt crisis Page 9
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Economics 2012 Exogenous data. Exogenous data corresponds to Xt in the multiple time series models defined in Types of VAR Models. Chart 2.12.4.1.2 VAR ForecastingWhen models with parameters are known or can be estimated), it possible to examine thepredictions of the models.The main methods of forecasting are: Generating forecasts with error bounds Generating simulations Generating sample pathsThese functions base their forecasts on a model specification and initial data. The functionsdiffer in their innovations processes:The error bounds given by transforms ofvgxpred error bounds are not valid bounds. Incontrast, the error bounds given by the statistics of transformed simulations are valid.Forecasting with vgxpred. vgxpred enables to generate forecasts with errorestimates. vgxpred requires:2.4.2 Linear Regression AnalysisIn statistics, regression analysis includes any techniques for modeling and analyzing severalvariables, when the focus is on the relationship between a dependent variable and one ormore independent variables. More specifically, regression analysis helps understand how thetypical value of the dependent variable changes when any one of the independent variables isvaried, while the other independent variables are held fixed. Contagion effect of Greek debt crisis Page 10
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Economics 2012Most commonly, regression analysis estimates the conditional expectation of the dependentvariable given the independent variables — that is, the average value of the dependent variable when the independent variables are held fixed. Less commonly, the focus is on aquantile, or other location parameter of the conditional distribution of the dependent variablegiven the independent variables.In all cases, the estimation target is a function of the independent variables called theregression function. In regression analysis, it is also of interest to characterize the variation ofthe dependent variable around the regression function, which can be described by a probabilitydistribution. Regression is a generic term for all methods attempting to fit a model to observed datain order to quantify the relationship between two groups of variables. The fitted model maythen be used either to merely describe the relationship between the two groups of variables, orto predict new values. The two data matrices involved in regression are usually denoted X and Y, and thepurpose of regression is to build a model Y = f(X). Such a model tries to explain, or predict, thevariations in the Y-variable(s) from the variations in the X-variable(s). The link between X andY is achieved through a common set of samples for which both X- and Y-values have beencollected.Names for X and YThe X- and Y-variables can be denoted with a variety of terms, according to the particularcontext (or culture). The most common ones are listed in the table below:Usual names for X- and Y-variables. Table 2.1 Context X Y General Predictors Responses Multiple Linear Regression Independent Dependent (MLR) Variables Variables Factors, Design Designed Data Responses Variables Spectroscopy Spectra Constituents Contagion effect of Greek debt crisis Page 11
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Economics 2012Dependent variable : Gr , Debt crisis at GreeceIndependent variable : F(X), Factors influenced by Greece debt crisis Y = F(X) + C Where is C is constant value Chart 2.2Once a regression model has been constructed, it may be important to confirm the goodnessof fit of the model and the statistical significance of the estimated parameters. Commonly usedchecks of goodness of fit include the R-squared, analyses of the pattern of residuals andhypothesis testing. Statistical significance can be checked by an F-test of the overall fit,followed by t-tests of individual parameters. Interpretations of these diagnostic tests rest heavily on the model assumptions.Although examination of the residuals can be used to invalidate a model, the results of a t-test or F-test are sometimes more difficult to interpret if the models assumptions are violated.With relatively large samples, however, a central limit theorem can be invoked such thathypothesis testing may proceed using asymptotic approximations. Contagion effect of Greek debt crisis Page 12
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Economics 20122.4.3.Correlation AnalysisA correlation function is the correlation between random variables at two different points inspace or time, usually as a function of the spatial or temporal distance between the points. Themain result of a correlation is called the correlation coefficient (or "r"). It ranges from -1.0 to+1.0. The closer r is to +1 or -1, the more closely the two variables are related. If r is close to 0,it means there is no relationship between the variables. If r is positive, it means that as onevariable gets larger the other gets larger. If r is negative it means that as one gets larger, theother gets smaller (often called an "inverse" correlation). While correlation coefficients are normally reported as r = (a value between -1 and +1),squaring them makes then easier to understand. The square of the coefficient (or r square) isequal to the percent of the variation in one variable that is related to the variation in the other.After squaring r, ignore the decimal point. An r of .5 means 25% of the variation is related (.5squared =.25). An r value of .7 means 49% of the variance is related (.7 squared = .49). A correlation report can also show a second result of each test - statistical significance.In this case, the significance level will tell you how likely it is that the correlations reported maybe due to chance in the form of random sampling error. If you are working with small samplesizes, choose a report format that includes the significance level. This format also reports thesample size. The Pearson correlation technique works best with linear relationships: as one variablegets larger, the other gets larger (or smaller) in direct proportion. It does not work well withcurvilinear relationships (in which the relationship does not follow a straight line). They arerelated, but the relationship doesnt follow a straight line. Chart 2.3 Contagion effect of Greek debt crisis Page 13
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Economics 20122.4.4. Descriptive statisticsDescriptive statistics, quantitatively describes the main features of a collection of data likecentral tendencies, Mean, Median, Mode and deviations like standard deviation, variance,standard error. Descriptive statistics is the discipline of quantitatively describing the mainfeatures of a collection of data.2.4.4.1 Univariate analysisUnivariate analysis involves describing the distribution of a single variable, including its centraltendency (including the mean, median, and mode) and dispersion (includingthe range and quantilesof the data-set, and measures of spread such asthe variance and standard deviation). The shape of the distribution may also be described viaindices such as skewness and kurtosis. Characteristics of a variables distribution may also bedepicted in graphical or tabular format, including histograms and stem-and-leaf plots.MeanThe most common expression for the mean of a statistical distribution with a discrete randomvariable is the mathematical average of all the terms. To calculate it, add up the values of allthe terms and then divide by the number of terms.This expression is also called the arithmetic mean. There are other expressions for the meanof a finite set of terms but these forms are rarely used in statistics. The mean of a statisticaldistribution with a continuous random variable, also called the expected value, is obtained byintegrating the product of the variable with its probability as defined by the distribution.MedianThe median of a distribution with a discrete random variable depends on whether the numberof terms in the distribution is even or odd. If the number of terms is odd, then the median is thevalue of the term in the middle. This is the value such that the number of terms having valuesgreater than or equal to it is the same as the number of terms having values less than or equalto it. If the number of terms is even, then the median is the average of the two terms in themiddle, such that the number of terms having values greater than or equal to it is the same asthe number of terms having values less than or equal to it. The median of a distribution with acontinuous random variable is the value m such that the probability is at least 1/2 (50%) that arandomly chosen point on the function will be less than or equal to m, and the probability is atleast 1/2 that a randomly chosen point on the function will be greater than or equal to m. Contagion effect of Greek debt crisis Page 14
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Economics 2012ModeThe mode of a distribution with a discrete random variable is the value of the term that occursthe most often. It is not uncommon for a distribution with a discrete random variable to havemore than one mode, especially if there are not many terms. This happens when two or moreterms occur with equal frequency, and more often than any of the others. A distribution withtwo modes is called bimodal. A distribution with three modes is called trimodal. The mode of adistribution with a continuous random variable is the maximum value of the function. As withdiscrete distributions, there may be more than one mode.RangeThe range of a distribution with a discrete random variable is the difference between themaximum value and the minimum value.For a distribution with a continuous random variable, the range is the difference between thetwo extreme points on the distribution curve, where the value of the function falls to zero. Forany value outside the range of a distribution, the value of the function is equal to 02.4.5.Graphical AnalysisIt gives graphical chart or plot of summary data in form of bar chart, pie chart, scatter diagram,linear curve chart .2.5 Software package/ tools used Table: 2.2 SOFTWARE TOOL ANALYSIS TOOL Correlation, Regression, Descriptive statistics, Central IBM SPSS STATISTICS V.14 Tendencies, Plotting charts, Plotting Graphs VAR analysis, Correlation, Forecasting, Percentage calculation, Microsoft Excel V.2010 Ratios, Graphical Analysis Contagion effect of Greek debt crisis Page 15
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Economics 2012 3. Sources of Data3.1 Secondary data: Secondary research such as website search was done for to get an idea about debt crisis at various Euro countries including Greece Online journals, review literatures were used to know the opinions and results of other research done in similar field or very close to it. Data were collected from government bodies recognized in the same industry.3.2 Nature of SamplingProbability Sampling: Nature of sampling used in this research is probability sampling in which each population element has a known and equal chance of being included in the sample. Any probability ratio can be calculated keeping this population e in denominator3.3 Sampling TypeFixed Sampling: This is a type of sampling in which samples are chosen pre decided from the entire pool of population. Each possible sample of a given size (n) has a known and equal probability of being the sample actually selected.3.4 Sample SizeThe analysis has a sample size of 10, where the samples are taken from10 selective countriesfrom Euro Area that have high chances of being contagion to Greek Debt crisis. Sample Size, N = 10 Contagion effect of Greek debt crisis Page 16
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Economics 20123.5 Target SampleThe countries that are selected for observation are expected to be contagion to Greek debtcrisis concluded after undergoing a background research work through review of literature. 1. Austria, 2. Belgium,3.Finland, 4.France,5.Germany, 6. Greece, 7. Italy,8. Portugal, 9.Netherland, 10. Spain3.6 Data Collection MethodsStage:1 To undergo contagion effect on eurozone it was important to collect data suggestedby proven studies. Online Journals were used to make a note of those selected countries, thatwere proven to have a contagion relationship with debt crisis at Greece.Stage:2 Once those countries were identified, relevant data on annual government net debtcrisis of each of those countries were gathered from reliable secondary resources asmentioned below. Since government net debt were not sufficient and Debt to GDP ratio was animportant concern. The same were collected from reliable resources.Stage:3 To cross check the authenticity of data, the collected data were randomly tested tosee if it matched with the data provided by other sources.3.7 Data Collected and SourcesData Set-1 11 years data on “Government Net Debt” were collected for each of the targeted country from the year 2000-2011. The data were collected from International Monetary Fund ( IMF) official website. Further, IMF approves andquotes the name of the government/regulatory body for a respective country from where the data has been referred to produce the above data.Data Set-2 5 years data on “Government Debt to GDP” were collected for each of the targeted country from the year 2007-2011. The data were collected from TradingEconomics official website which is globally recognized for providing reliable statistics all around the world with latest available data TradingEconomics collects data from authorized government institutions, annually/quarterly declared fiscal resultsand central banks to collect the data. Contagion effect of Greek debt crisis Page 17
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Economics 2012 4. Analysis and Results 4.1 Focus of analysis Our prime focus of analysis will be to identify the contagion effect of Greek debt crisis in euro countries like Austria, Belgium, Finland, France, Germany, Italy, Netherland, Portugaland Spain by establishing a relationship among them. 4.2Analysis of Data set-1 Table : 4.1 General government net debt in Billions ( Unit in respective National Currency) 1996-2004 1996 1997 1998 1999 2000 2001 2002 2003 2004 Country 105.93 Austria 90.014 84.585 85.735 90.37 90.01 93.833 95.65 96.863 2 245.79 247.61 247.55 245.8 246.01 246.50 250.16 243.53 Belgium 248.935 8 6 1 41 4 9 1 6 - - - - - - - - Finland 101.22 61.49 -55.947 39.571 47.809 41.102 44.085 44.987 71.068 4 9 France 621.1 655.7 689.8 710.9 740.4 767.4 819.6 901.1 971.2 772.48 817.02 849.39 876.9 841.97 890.10 1,042.8 1,115.Germany 955.4 4 3 3 63 4 6 5 94 93.64 105.48 118.83 133.86 183.12 Greece 65.504 73.791 83.126 167.724 2 8 2 5 3 1,076. 1,090. 1,104.3 1,097. 1,115. 1,161. 1,162. 1,186.6 1,230. Italy 20 20 8 76 68 11 59 2 58Netherland 124.03 120.06 101.5 103.90 108.79 116.84 137.96 122.09 128.219 s 6 8 82 9 4 2 3 49.72 Portugal 54.259 47.446 47.297 53.31 62.221 67.434 73.25 79.299 2 284.65 301.68 316.18 317.35 324.06 321.13 324.91 Spain 309.53 323.935 4 4 8 2 3 5 4 Sources: IMF data, April 2012 Contagion effect of Greek debt crisis Page 18
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Economics 2012 Table : 4.2 General government net debt in Billions ( Unit in respective National Currency) 2005-2011 Country 2005 2006 2007 2008 2009 2010 2011 Austria 108.86 111.549 111.982 118.802 135.732 148.916 158.065 Belgium 248.705 245.996 245.541 254.249 271.384 284.385 307.108 - - - - Finland -92.24 -115.08 -96.841 130.415 108.271 116.242 114.705 France 1,043.60 1,072.60 1,123.60 1,203.80 1,360.00 1,478.60 1,604.90 Germany 1,189.51 1,227.10 1,223.27 1,236.82 1,345.10 1,406.90 1,441.26 Greece 195.387 224.204 239.364 262.318 298.706 328.588 355.78 Italy 1,276.98 1,333.72 1,350.48 1,398.43 1,476.14 1,538.26 1,573.30 Netherlands 133.951 132.164 123.687 122.566 131.786 161.858 192.033 Portugal 89.092 94.194 107.785 115.85 132.833 153.973 172.33 Spain 316.888 302.108 281.191 335.048 445.333 522.401 611.265 Sources: IMF data, April 20124.2.1 Multiple Regression AnalysisRegression analysis includes techniques for modeling and analyzing several variables, whenthe focus is on the relationship between a dependent variable and one or more independentvariables. More specifically, regression analysis helps one understand how the typical valueof the dependent variable changes when any one of the independent variables is varied, whilethe other independent variables are held fixed.4.2.1.1 Independent Variable A: Government Net Debt of Austria B: Government Net Debt of Belgium Fi: Government Net Debt of Finland Fr : Government Net Debt of France Ge : Government Net Debt of Germany I: Government Net Debt of Italy N : Government Net Debt of Netherland P : Government Net Debt of Portugal S : Government Net Debt of Spain Contagion effect of Greek debt crisis Page 19
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Economics 2012 4.2.1.2Dependent variable Gr: Government Net Debt of Austria Sample : 2005- 2011 data provided by IMF 4.2.1.3 SPSS OUTPUT Table:4.3 Variables Entered/Removed(b) Variabl es Mod Variables Remov el Entered ed Method 1 Finland, Spain, Netherland, . Enter Portugal, Italy, Belgium(a) a Tolerance = .000 limits reached. b Dependent Variable: Greece Table:4.4 Model Summary(b) Std. ErrorMod Adjusted of theel R R Square R Square Estimate Change Statistics R Square Sig. F Change F Change df1 df2 Change1 1.000(a) 1.000 . . 1.000 . 6 0 . a Predictors: (Constant), Finland, Spain, Netherland, Portugal, Italy, Belgium b Dependent Variable: Greece Contagion effect of Greek debt crisis Page 20
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Economics 2012 Table:4.5 ANOVA(b) Mod Sum of Mean el Squares df Square F Sig. 1 Regression 20247.3 6 3374.557 . .(a) 42 Residual .000 0 . Total 20247.3 6 42 a Predictors: (Constant), Finland, Spain, Netherland, Portugal, Italy, Belgium b Dependent Variable: Greece Table:4.6 Coefficients(a) Standardize Unstandardized d 95% Confidence Interval Coefficients Coefficients for BMod Std. Lower Upper el B Error Beta t Sig. Bound Bound 1 (Constant -714.616 .000 . . -714.616 -714.616 ) Belgium 1.450 .000 .586 . . 1.450 1.450 Italy .493 .000 .942 . . .493 .493 Netherlan -.077 .000 -.034 . . -.077 -.077 d Portugal .100 .000 .053 . . .100 .100 Spain -.253 .000 -.553 . . -.253 -.253 Finland -.017 .000 -.004 . . -.017 -.017 Austria .075 .000 -.037 . . -.075 -.075 France .396 .000 .047 . . .396 .396 Germany .402 .000 -.554 . . -.402 -.402 a Dependent Variable: Greece Contagion effect of Greek debt crisis Page 21
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Economics 20124.2.1.4 Statistical Interpretation :R square value: R Square value = 1.0.which shows that the relationship is 100% accurate todefine the existing relationship between Debt Crisis at Greece (Ge) and debt crisis in othercountries like Austria(A), Belgium(B), Germany(Gr), France(Fr), Finland(Fi), Italy(I),Netherland(N), Portugal(P) and Spain(S).T-test:The independent variable’s t-value is blankin Spss output since R square value =1, which shows that the Greece debt crisis have agreater impact on other euro countries. F-test Significance Level: All significant values areblank showing close to 0, which means p = 0 < 0.05, hence all the independent variablesassumed are significant enough to support these analysis. B value in output:Slopes of Fi,N,S are negatively relatedwhereas slopes A,B,Ge,Fr,I,Pare Positively related. Constant is negatively relatedMultiple Regression linear Equations Gr = C + F(X) C = - 714.616 F(X) = 0.075 A + 1.45 B - 0.017 Fi + 0.396 Fr + 0.402 Ge + 0.493 I -0.077 N + P - 0.253 S Gr = 0.075 A + 1.45 B - 0.017 Fi + 0.396 Fr + 0.402 Ge + 0.493 I - 0.077 N + P - 0.253 S - 714.6164.2.2 Results of regression analysis The debt crisis in Greece will have a negative impact on debt crisis of Netherland, Spain and Finland which may turn the debt value drawn more towards the negative value.Gr α 1/N,1/S,1/Fi Higher the level of debt crisis occurs in Greece, it will be contagious to euro countries like Belgium, Austria ,Italy, Germany France and Portugal and will impact there economy.Gr α B,A,I,Ge,Fr,P Debt crisis in Greece will have highest impact on Belgium ( around 1.5 times ), where the adverse affect of shockwaves can generate even higher percentage of debt crisis in Belgium than Greece itself.Some other countries which would get badly affected are Italy , followed by Germany, France and Spain. However Netherland,Finland and Austria will have very little impact caused due to Greek debt crisis and will remain financial unaffected by such crisis. Contagion effect of Greek debt crisis Page 23
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Economics 2012 4.2.3 Correlation Analysis A correlation function is the correlation between random variables at two different points in space or time, usually as a function of the spatial or temporal distance between the points. Correlation functions are a useful indicator of dependencies as a function of distance in time or space, and they can be used to assess the distance required between sample points for the values to be effectively uncorrelated. In addition, they can form the basis of rules for interpolating values at points for which there are observations. For random variables X(s) and X(t) at different points s and t of some space, the correlation function is 4.2.3.1 Correlation Variable A: Government Net Debt of Austria ,B: Government Net Debt of Belgium,Fi: Government Net Debt of Finland,Fr : Government Net Debt of France ,Ge : Government Net Debt of Germany,I: Government Net Debt of Italy,N : Government Net Debt of Netherland, P : Government Net Debt of Portugal,S : Government Net Debt of Spain, Gr: Government Net Debt of Austria Sample : 2005- 2011 data provided by IMF 4.2.3.2 Correlation Matrix XPSS OUTPUT Table:4.7 Correlations Matrix Gree Austri Belgiu Franc Germa Netherl Portug Spai Finla ce a m e ny Italy and al n ndPearson Greece .99Correlat 1.000 .976 .940 .989 .974 .781 .991 .937 -.285 8ion Austria .98 .976 1.000 .982 .995 .994 .866 .985 .988 -.202 0 Belgium .93 .940 .982 1.000 .977 .965 .924 .966 .995 -.135 8 France .98 .989 .995 .977 1.000 .986 .842 .996 .975 -.217 9 Contagion effect of Greek debt crisis Page 24
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Economics 20124.2.3.4 Interpretation of correlation analysis. All euro countries are strongly correlated with correlation coefficient value R > 0.75 and significance value T < 0.054.2.4 Results of correlation analysis The debt crisis in Greece were strongly correlated with Italy, followed by Portugal and France showing that Greece debt crisis is much more contagious to these countries. However Austria,Belgium, Germanyand Spain too have a significant impact caused by Greece debt crisis. Netherland is partially correlated, whereas statistically Finland is not having a very strong impact caused by Greece as it is weekly correlated. Finland is the only country in the sample that it least affected by euro crisis. Adverse effect of euro countries on Finland can be tolerated to a large extent, thus avoiding chances of financialinstability. Greece debt crisis is a growing concern for all the Eurozone countries where chances of countries like Austria,Belgium,France,Germany,Italy,Portugal and Spain is more than 90% to be affected by economic slowdown caused due to debt crisis in Greece. However Finland and Netherland seems to be much more stable and can tolerate a turmoil caused due to deficit or government borrowing by Greece and other euro countries.4.2.5 Descriptive Statistical analysisDescriptive statistics quantitatively describe the main features of a collection of data.Descriptive statistics are distinguished from inferential statistics (or inductive statistics), in thatdescriptive statistics aim to summarize a data set, rather than use the data to learn about thepopulation that the data are thought to represent.Sample : 2005- 2011 data provided by IMF Contagion effect of Greek debt crisis Page 26
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Economics 2012 4.2.5.1 SPSS Output Table 4.8 Descriptive Statistics Std. Minimu Maxim Deviatio Varianc N Range m um Sum Mean n e Statisti Statisti Std. c Statistic Statistic c Statistic Statistic Error Statistic StatisticGreece 272.049 21.95 58.0909 3374.5 7 160.39 195.39 355.78 1904.35 6 631 4 57Austria 127.700 7.525 19.9110 396.44 7 49.21 108.86 158.07 893.91 9 66 3 9Belgium 265.338 8.877 23.4866 551.62 7 61.57 245.54 307.11 1857.37 3 11 3 2Finland - 4.862 12.8659 165.53 7 38.18 -130.42 -92.24 -773.79 110.542 85 0 1 0France 1604.9 1269.58 81.62 215.951 46634. 7 561.30 1043.60 8887.10 0 57 193 34 981Germany 1441.2 1295.70 38.01 100.572 10114. 7 251.75 1189.51 9069.96 6 86 276 32 791Italy 1573.3 1421.04 41.92 110.926 12304. 7 296.32 1276.98 9947.31 0 43 614 13 606Netherland 142.577 9.604 25.4106 645.70 7 69.47 122.57 192.03 998.05 9 33 6 2Portugal 123.722 11.69 30.9514 957.99 7 83.24 89.09 172.33 866.06 4 856 9 5Valid N 7(listwise) 4.2.6 Results of Descriptive Statistics The average debt crisis at Greek is around 272 billion over 2005-2012. It is to be noted that Greece, Germany, France andItaly undergo higher fluctuation in debt values whereas debt has been seen stable in Belgium, Finland,and Netherlandand Portugal. 4.2.7 VAR ( Vector autoregressive regression Analysis ) Vector autoregression (VAR) is a statistical model used to capture the linear interdependencies among multiple time series. All the variables in a VAR are treated symmetrically; each variable has an equation explaining its evolution based on its own lags and the lags of all the other variables in the mode Contagion effect of Greek debt crisis Page 27
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Economics 2012 Chart 4.7 2500 2000 1500 Austria BelgiumGovt Net Debt Finland France 1000 Germany Greece Italy Netherlands Portugal 500 Spain 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 -500 Year Contagion effect of Greek debt crisis Page 28
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Economics 2012 Table:4.9 ( Forecasted value of Debt from 2012 – 2017) Country 2012 2013 2014 2015 2016 2017 Austria 168.426 175.515 181.167 186.555 191.756 191.756 Belgium 317.98 326.345 331.398 333.342 334.614 334.864 - - - - - Finland -110.24 111.875 109.512 109.077 109.242 110.005 France 1,715.32 1,798.26 1,865.32 1,915.00 1,942.10 1,949.65 Germany 1,431.77 1,453.24 1,464.88 1,502.36 1,540.66 1,579.98 Greece 332.355 339.421 334.098 331.058 327.285 322.708 Italy 1,606.87 1,629.88 1,655.53 1,678.27 1,699.78 1,719.01 Netherlands 219.605 250.291 280.639 306.911 328.901 346.132 Portugal 185.976 194.174 199.145 202.993 206.437 209.86 Spain 712.215 775.35 835.163 884.586 931.416 983.0224.3 Government Debt to GDPIt is not always a good idea to conclude based on actual government net debt figures, but it ismuch more important to understand how much debt is remaining to be paid over how muchrevenue is generated by current economy. So a ratio of debt over GDP gives a clear idea inpercentage terms, that how much of amount is to be paid back over their gross revenue.4.4 Analysis of Data set- II Table 4.10 (Government debt to GDP ) Country 2007 2008 2009 2010 2011 Austria 60 63 69 71 72 Belgium 84 89 95 96 98 Finland 35 33 43 48 48 France 44 54 69 79 85 Germany 64 66 74 83 81 Greece 167 174 194 200 211 Italy 105.00 113.00 129.00 145.00 165.00 Netherlands 45 58 60 62 65 Portugal 103 105 116 118 120 Spain 36 40 53 61 68 Sources : Tradingeconomic.com ( 2008-2011) data Contagion effect of Greek debt crisis Page 29
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Economics 20124.4.1 Multiple Regression Analysis4.4.1.1 Independent Variable A: Government Debt of GDP in Austria B: Government Debt of GDP in Belgium Fi: Government Debt of GDP in Finland Fr : Government Debt of GDP in of France Ge : Government Debt of GDP in of Germany I: Government Debt of GDP in of Italy N : Government Debt of GDP in of Netherland P : Government Debt of GDP in of Portugal S : Government Debt of GDP in of Spain4.4.1.2 Dependent variable Gr: Government Net Debt of AustriaSample : Tradeeconomic.com ( 2008-2011) data Table 4.11 Variables Entered/Removed(b) Mod Variables Variables el Entered Removed Method 1 Spain, Netherlan d, . Enter Germany, Portugal( a) a Tolerance = .000 limits reached.b Dependent Variable: Greece Table 4.12 ANOVA(b) Mod Sum of Mean el Squares Df Square F Sig. 1 Regression 1338.80 4 334.700 . .(a) 0 Residual .000 0 . Total 1338.80 4 0 Contagion effect of Greek debt crisis Page 30
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Economics 2012 a Predictors: (Constant), Spain, Netherland, Germany, Portugal b Dependent Variable: Greece Table 4.13 Coefficients(a) StandardizeMod Unstandardized d 95% Confidence Intervalel Coefficients Coefficients t Sig. for B Std. Lower Upper B Error Beta Bound Bound1 (Constant 64.378 .000 . . 64.378 64.378 ) Germany .541 .000 -.253 . . -.541 -.541 Netherlan .147 .000 .062 . . .147 .147 d Portugal .884 .000 .378 . . .884 .884 Spain 1.101 .000 .817 . . 1.101 1.101a Dependent Variable: Greece Table 4.14 Excluded Variables(b) Collinearity Statistics Mod Partial Toleranc Minimum el Beta In t Sig. Correlation e VIF Tolerance 1 Austria .(a) . . . .000 . .000 Belgium .(a) . . . .000 . .000 Finland .(a) . . . .000 . .000 France .(a) . . . .000 . .000 Italy .(a) . . . .000 . .000 a Predictors in the Model: (Constant), Spain, Netherland, Germany, Portugal b Dependent Variable: Greece Contagion effect of Greek debt crisis Page 31
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Economics 2012 Chart 4.10Chart 4.114.4.1.3 Interpretation of regression analysis Contagion effect of Greek debt crisis Page 33
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Economics 2012 R square value: R Square value = 1.0.which shows that the relationship is 100% accurate to define the existing relationship between Debt Crisis of GDP in Greece (Ge) and debt crisis in other countries like Austria(A), Belgium(B), Germany(Gr), France(Fr), Finland(Fi), Italy(I), Netherland(N), Portugal(P) and Spain(S) .T-test:The independent variable’s t-value is blank in Spss output since R square value =1, which shows that the Greece debt in GDP crisis have a greater impact on other euro countries. F-test Significance Level: All significant values are blank showing close to 0, that means p = 0 < 0.05,hence all the independent variables assumed are significant enough to support these analysis.However A,B,Fi,Fr and I variables are excluded value in output: Slopes N,P,S,Gr are Positively related. Constant is negatively relatedMultiple Regression linear Equations Gr = C + F(X) C = 64.38 F(X) = 0.147 N + 0.884 P + 1.101 S + 0.541 Gr Gr = 0.147 N + 0.884 P + 1.101 S + 0.541 Gr - 64.384.4.2 Results of regression analysis The debt to GDP ratio in Greece has impact on debt to GDP ratio inNetherland, Spain, Portugal and Germany.Gr α N,P,S,Gr The debt crisis in Greece will be contagious to all the above mentioned four countries. Debt to GDP ratio in Greece will have highest influence on Spain ,where the adverse effect of shockwaves can generate equivalent percentage of debt to GDP crisis in Spain.Other countries which would get badly affected are Portugal followed by Germany. Netherland seems to be stable and unaffected. Contagion effect of Greek debt crisis Page 34
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Economics 20124.4.3 Correlation Analysis Table : 4.15 Correlation Matrix Generated by Excel Spreadsheet4.4.3.1 Interpretation of correlation analysis All euro countries are strongly correlated with correlation coefficient value above R > 0.75 .4.4.4 Results of correlation analysis The debt crisis to GDP in Greece were strongly correlate with Spain followed by France and Portugal. showing that Greece debt crisis is much more contagious to these countries. In general all euro countries are very strongly correlated to each other. Euro crisis inone country will be a growing concern for all other Eurozone countries.Chances of countries like Austria, Belgium, France, Italy, Finland,Portugal and Spain is more than 98% to be affected by economic slow down caused due to debt crisis in Greece. However Netherland seems to be little bit stable with crisis at Greece andwill have lesser impact compared to other euro countries. Contagion effect of Greek debt crisis Page 35
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Economics 20124.4.5Descriptive Statistics for Debt to GDP. Table 4.16 Descriptive Statistics Std. Minimu Maximu Deviatio Varianc N Range m m Mean n e Std. Statistic Statistic Statistic Statistic Statistic Error Statistic Statistic Austria 5 12.00 60.00 72.00 67.0000 2.34521 5.24404 27.500 Belgium 5 14.00 84.00 98.00 92.4000 2.58070 5.77062 33.300 Finland 5 15.00 33.00 48.00 41.4000 3.17175 7.09225 50.300 France 17.0792 5 41.00 44.00 85.00 66.2000 7.63806 291.700 3 Germany 5 19.00 64.00 83.00 73.6000 3.82884 8.56154 73.300 Greece 189.200 18.2948 5 44.00 167.00 211.00 8.18169 334.700 0 1 Italy 131.400 10.8517 24.2652 5 60.00 105.00 165.00 588.800 0 3 0 Netherland 5 20.00 45.00 65.00 58.0000 3.44964 7.71362 59.500 Portugal 112.400 5 17.00 103.00 120.00 3.50143 7.82943 61.300 0 Spain 13.5757 5 32.00 36.00 68.00 51.6000 6.07124 184.300 1 Valid N 5 (listwise)4.4.6 Results of Descriptive Statistics Within the Euro countries, Greece is having the highest debt crisis of 189.2 followed by Italy ( 131.4) and Portugal (112.4). The debt crisis is very instable in case of Italy and France where chances of figure getting fluctuated is at higher risk.Austria and Belgium have a very consistent debt to GDP over period of time. Contagion effect of Greek debt crisis Page 36
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Economics 2012 Chart 4.12 250 200 150 AustriaGovt Debt to GDP Belgium Finland France Germany Greece 100 Italy Netherlands Portugal Spain 50 0 2006.5 2007 2007.5 2008 2008.5 2009 2009.5 2010 2010.5 2011 2011.5 Year Contagion effect of Greek debt crisis Page 37
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Economics 20124.4.7 Country wise Correlation Coefficient trend Chart : 4.13 References : Sabastian Misso,Sabastian Watzka, (Aug 2011), “Financial Contagion and European Debt Crisis",Ludwig Maximilian - University of Munich, pp.2-4 Contagion effect of Greek debt crisis Page 38
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Economics 2012 5. Key Observations5.1 ObservationsandFindings 1. All major euro countries under observation for this research are contagion to Greek Debt crisis. 2. Spain,Belgium,Italy,Portugal and France are the countries that get affected worst by such crisis.Chances of getting impacted are above 90%. 3. However Finlandand Netherland are the two countries that remain stable and very little affected by debt crisis in Greece. Chances of getting affected for Finland are below 40%. 4. Finland is the country that is least affected by debt crisis by any other country in euro zone. 5. Greece is the worst affected country in terms of debt with an average of 189 debt to GDP followed by Italy, Portugal andBelgium, as the research itself says that these are the countries that are most vulnerable to Greece debt crisis. 6. Finland is under surplus of funds and is not running under any debt crisis. 7. Chances of Debt to GDP value of France and Italy varying over its average is higher than any other countries and thus need to be updated on financialsituation in Greece. 8. Austria is a country that would fluctuate least over its average value when affected by a debt crisis cause by Greece. 9. The average debt crisis caused due to all 10 countries under observation, is 88.32% of GDP with a standard deviation of 11.54. 10. 8Belgium,Portugal and Spain should closely observe the Greece market as the trend analysis concludes a very similar pattern of rise and fall in these countries. 11. Euro countries are very much correlated to each other in terms of trade,growth and financial stability.The correlation matrix shows that other than Finland all countries are interrelated and vulnerable to each other’seconomy. One country getting affected can slow down the economy over other country. The main reason behind this is the governing body which is standardized over this region leading to standard financial practices,fiscal and monetary policy and also the nature of consistent trade in between these countries. Contagion effect of Greek debt crisis Page 39
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Economics 2012 6. ConclusionGreece debt crisis is contagion in nature and can disturb the financial stability of euro countriesto a great extent especially in countries like Spain,Belgium,Portugal and Italy.Thus it is matter of concern for common governing body to observe and evaluate the financialstability of Eurozone, estimate the risk involved and devise a contingency plan in such a waythat when one country undergoes financial crisis, it is well informed beforehandanda backupplan is ready to be executed to avoid these crisis getting contagion to neighboring countries. Contagion effect of Greek debt crisis Page 40
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Economics 2012 9.Glossary*Analysis of Variance (ANOVA):A statistical method establishing the existence of a difference between several sample means.*Autocorrelation:The same variable is observed over time. The observations produce different values which are correlated.*Confidence Level:A probability that is used to determine, with confidence, that the true population value is represented in thestatistical distribution.*Correlation Analysis:A statistical technique that helps in determining the strength of the relationship between variables.*Dependent Variable:A concept thats value changes as an independent variable changes. Statistics are used toexplain the strength of the relationship between the two variables. Can also be called a criterion variable.*F-Test:A statistical probability test measuring a calculated value’s ability to occur due to chance.*Focus Group:A marketing research technique for qualitative data that involves a small group of people (6-10) that share acommon set characteristics (demographics, attitudes, etc.) and participate in a discussion of predetermined topicsled by a moderator*Independent Variable:A variable that is controlled or manipulated by the researcher.*Mean:An average found by summing all observations then dividing the total number of observations.*Multiple Regression Analysis:Statistical procedure identifying the relationship between two or more independent variables in an effort toidentify patterns within the relationship.*Nominal Scale:A measurement scale identifying variable categories. For example, male/female, user/nonuser.*Non-Probability Sample:A sample of the population chosen by the investigator rather than by using probability to choose the participants.By doing this, a true representative cross section of the population is foregone. Contagion effect of Greek debt crisis Page 43
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Economics 2012*Population:The entire set of subjects that an experiment is attempting to identify.*Primary Research:Research conducted in search of new data to solve a marketing information discrepancy.*Probability Sample:Each element in the population has a known nonzero probability of being selected for inclusion in a study. Alsocalled random sampling.*Range:The spread of data, from the lowest variable to the highest variable.*Ratio Scale:A response scale for a survey or questionnaire that categorizes responses ranking them from smallest tolargest and has a consistent range between each of the category choices.*Reliability:A consistent method that often yields the same results each time that it is measured.*Sample:A group that is selected to study as a representative of the true*Sample Population:The description of the characteristics that define a particular population.*Sample Size:Number of sample units to be included in the sample.*Scale:A technique used for participants to measure an object based on set characteristics. Scales are close-ended questions that require one of the offered responses as the respondent’s answer.*Secondary Research:The analysis of research that had been collected at an earlier time (for reasons unrelated to the currentproject) that can be applied to a study in progress.*Standard Deviation:A measure of dispersion that is found mathematically by the positive square root of the average squareddifference between the mean and the sample or population values.*Standard Error:The error between the mean and the actual value as defined by the standard deviation. Standard errorcan also be found by taking the square root of the variance. Contagion effect of Greek debt crisis Page 44
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Economics 2012*T-Test:A statistically hypothesis test that is based on a single mean when the sample size is not large enough touse the Z-test.*Variable:A quantity with an assigned value that may change during research.*Variance:Variance measures the dispersion of a variable about its mean. Contagion effect of Greek debt crisis Page 45
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Economics 2012 10. ReferencesReferred Document:Sabastian Misso,Sabastian Watzka, (Aug 2011), “Financial Contagion and European DebtCrisis",Ludwig Maximilian - University of Munich, pp.2-4Website Links: DATA SET-I :www.imf.org/download) DATA SET-2:http://www.tradingeconomics.com/government-debt-to-gdp-list-by-country Statistical Data: http://www.mathstool.com/stats/ Glossary : http://www.marketresearchterms.com/xyz.php Contagion effect of Greek debt crisis Page 46
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