Abstract
This study suggests a simple financial instability indicator for the euro area economy. It works as a discrete thermometer with three possible outcomes depending on the severity of the crisis. This indicator is based on the specific shape of the credit term structure for the two main peripheral countries in the area. The paper discusses how some key features of term structure are linked to government debt carry trade. In order to assess the performance of the proposed market-based indicator, the paper shows how the identified episodes of financial turmoil are related with the timing and the intensity of unconventional measures in the euro area.
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