The multi-country transmission of sovereign and banking risk: a spatial vector autoregressive approach

Research output: Contribution to journalArticlepeer-review

12 Scopus citations

Abstract

This paper develops a spatial vector autoregressive (SpVAR) model to investigate the transmission of sovereign, banking and corporate default risks among 11 Eurozone countries for the period January 2008–December 2013. The results show that a significant proportion of default risk variation is explained by foreign shocks. However, the cross-border sovereign–bank nexus is statistically significant, but economically moderate. Among the three sectors, shocks to the banking sector play the most critical role. On average, for the 11 countries, a foreign banking shock can explain 7%, 23% and 18% of the forecast error variance of changes in sovereign, banking and corporate credit default swap spreads respectively.

Original languageEnglish
Pages (from-to)422-441
Number of pages20
JournalSpatial Economic Analysis
Volume13
Issue number4
DOIs
StatePublished - 2 Oct 2018
Externally publishedYes

Keywords

  • banking credit default swap spreads
  • corporate credit default swap spreads
  • cross-border spillover
  • sovereign credit default swap spreads
  • spatial vector autoregressive model

Fingerprint

Dive into the research topics of 'The multi-country transmission of sovereign and banking risk: a spatial vector autoregressive approach'. Together they form a unique fingerprint.

Cite this