The dynamics of spillover effects during the european sovereign debt turmoil : [draft: october 29, 2012]

In this paper we develop empirical measures for the strength of spillover effects. Modifying and extending the framework by Diebold and Yilmaz (2011), we quantify spillovers between sovereign credit markets and banks in 
In this paper we develop empirical measures for the strength of spillover effects. Modifying and extending the framework by Diebold and Yilmaz (2011), we quantify spillovers between sovereign credit markets and banks in the euro area. Spillovers are estimated recursively from a vector autoregressive model of daily CDS spread changes, with exogenous common factors. We account for interdependencies between sovereign and bank CDS spreads and we derive generalised impulse response functions. Specifically, we assess the systemic effect of an unexpected shock to the creditworthiness of a particular sovereign or country-specific bank index to other sovereign or bank CDSs between October 2009 and July 2012. Channels of transmission from or to sovereigns and banks are aggregated as a Contagion index (CI). This index is disentangled into four components, the average potential spillover: i) amongst sovereigns, ii) amongst banks, iii) from sovereigns to banks, and iv) vice-versa. We highlight the impact of policy-related events along the different components of the contagion index. The systemic contribution of each sovereign or banking group is quantified as the net spillover weight in the total net-spillover measure. Finally, the captured time-varying interdependence between banks and sovereigns emphasises the evolution of their strong nexus.
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Metadaten
Author:Adrian Alter, Andreas Beyer
URN:urn:nbn:de:hebis:30:3-266587
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2012,13
Series (Serial Number):CFS working paper series (2012, 13)
Publisher:CFS
Place of publication:Frankfurt, Main
Document Type:Working Paper
Language:English
Year of Completion:2012
Year of first Publication:2012
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2012/11/09
Tag:CDS; Contagion; Impulse Responses; Sovereign Debt; Systemic Risk
Issue:Draft: October 29, 2012
Pagenumber:44
Note:
First Draft: July 11, 2012 ; This Draft: October 29, 2012
HeBIS PPN:347237797
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:C59 Other
G01 Financial Crises (Updated!)
G18 Government Policy and Regulation
G21 Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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