Dynamic Measures of Sovereign Systemic Risk

This paper introduces a dynamic dependence framework to calculate various indicators of systemic sovereign default risk. Our analysis reveals a notable increase in systemic fragility among euro-area sovereigns since the onset of the Subprime Crisis, particularly during the First Greek Bailout in May 2010. Furthermore, our measures successfully capture key events within the euro area, including Mario Draghi’s impactful “whatever-it-takes” speech in mid-2012 and the Cypriot Banking Crisis of 2012-2013. The incorporation of dynamic dependence into our measures provides a more comprehensive depiction of systemic risk within the euro area sovereign system, often demonstrating distinct dynamics when compared to their static counterparts. These findings carry significant policy implications and contribute to enhancing our understanding of systemic risk among euro-area sovereigns.