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Measuring interconnectedness across institutions and sectors

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  • Julio Gálvez

Abstract

This article analyzes the transmission of risk across euro area sovereign debt markets, euro area equity markets, and financial and non-financial sectors in Spain. To this end, the study draws on the connectedness methodology proposed by Diebold and Yilmaz (2009), which focuses on forecast error variance decompositions from vector autoregressive models. The results indicate that the spillover indices using this methodology identify periods during the euro area sovereign debt crisis and the current COVID-19 pandemic when spillovers were generated across financial markets and sectors.

Suggested Citation

  • Julio Gálvez, 2021. "Measuring interconnectedness across institutions and sectors," Financial Stability Review, Banco de España, issue Autumn.
    • Handle: RePEc:bde:revisl:y:2021:i:11:n:4
    Note: 41
    as

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    File URL: https://www.bde.es/f/webbde/Secciones/Publicaciones/InformesBoletinesRevistas/InformesEstabilidadFinancera/21/4_Interconnectedness_FSR41.pdf
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    References listed on IDEAS

    as
    1. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
    2. Christian Brownlees & Robert F. Engle, 2017. "SRISK: A Conditional Capital Shortfall Measure of Systemic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 48-79.
    3. Lukas Boeckelmann & Arthur Stalla-Bourdillon, 2021. "Structural Estimation of Time-Varying Spillovers:an Application to International Credit Risk Transmission," Working Papers hal-03338209, HAL.
    4. Corradin, Stefano & Grimm, Niklas & Schwaab, Bernd, 2021. "Euro area sovereign bond risk premia during the Covid-19 pandemic," Working Paper Series 2561, European Central Bank.
    5. Billio, Monica & Getmansky, Mila & Lo, Andrew W. & Pelizzon, Loriana, 2012. "Econometric measures of connectedness and systemic risk in the finance and insurance sectors," Journal of Financial Economics, Elsevier, vol. 104(3), pages 535-559.
    6. Christian Gross & Pierre L. Siklos, 2020. "Analyzing credit risk transmission to the nonfinancial sector in Europe: A network approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(1), pages 61-81, January.
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