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Information Flow in Times of Crisis: The Case of the European Banking and Sovereign Sectors

Author

Listed:
  • Mardi Dungey

    (Tasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, Australia
    Mardi Dungey passed away just as this manuscript was accepted for publication.)

  • Stan Hurn

    (School of Economics and Finance, Queensland University of Technology, Brisbane QLD 4000, Australia)

  • Shuping Shi

    (Department of Economics, Macquarie University, Sydney 2109, Australia)

  • Vladimir Volkov

    (Tasmanian School of Business and Economics, University of Tasmania, Hobart TAS 7001, Australia)

Abstract

Crises in the banking and sovereign debt sectors give rise to heightened financial fragility. Of particular concern is the development of self-fulfilling feedback loops where crisis conditions in one sector are transmitted to the other sector and back again. We use time-varying tests of Granger causality to demonstrate how empirical evidence of connectivity between the banking and sovereign sectors can be detected, and provide an application to the Greek, Irish, Italian, Portuguese and Spanish (GIIPS) countries and Germany over the period 2007 to 2016. While the results provide evidence of domestic feedback loops, the most important finding is that financial fragility is an international problem and cannot be dealt with purely on a country-by-country basis.

Suggested Citation

  • Mardi Dungey & Stan Hurn & Shuping Shi & Vladimir Volkov, 2019. "Information Flow in Times of Crisis: The Case of the European Banking and Sovereign Sectors," Econometrics, MDPI, vol. 7(1), pages 1-20, January.
    • Handle: RePEc:gam:jecnmx:v:7:y:2019:i:1:p:5-:d:198651
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    References listed on IDEAS

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    2. Ahmed BenSaïda & Houda Litimi, 2021. "Financial contagion across G10 stock markets: A study during major crises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4798-4821, July.
    3. Matthew Greenwood‐Nimmo & Viet Hoang Nguyen & Eliza Wu, 2021. "On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks," The Economic Record, The Economic Society of Australia, vol. 97(317), pages 285-309, June.

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