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 language | English |
---|---|
Pages (from-to) | 422-441 |
Number of pages | 20 |
Journal | Spatial Economic Analysis |
Volume | 13 |
Issue number | 4 |
DOIs | |
State | Published - 2 Oct 2018 |
Externally published | Yes |
Keywords
- banking credit default swap spreads
- corporate credit default swap spreads
- cross-border spillover
- sovereign credit default swap spreads
- spatial vector autoregressive model