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This paper implements a simultaneous equations model to test for international financial contagion among developed sovereign credit markets between May 1, 2000 and September 1, 2010. Two alternative measures are proposed that identify credit crises in the tails of bond yield distributions, which are derived from Extreme Value Theory and Value-at-Risk analysis. The findings show that the large-scale fluctuations in long term sovereign bond yields observed during episodes of financial distress signal a structural shift in cross-market linkages with respect to tranquil periods. All analyzed countries are vulnerable to shift contagion and the estimated contagion effects are robust across the different measures of credit crises.
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