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Spillover effects between energy uncertainty and financial risk in the Eurozone banking sector

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  • Pacelli, Vincenzo
  • Di Tommaso, Caterina
  • Foglia, Matteo
  • Povia, Maria Melania

Abstract

This paper investigates the connection between energy uncertainty and banking credit risk within the Eurozone. To analyze this relationship, we first apply a Bayesian time-varying VAR model to examine how shocks in energy uncertainty influence financial risk. Next, we use the impulse response function to assess how these shocks propagate through the banking sector. Further, long-run Granger causality is employed to investigate the causal pathways of shock transmission. Our empirical findings show clear patterns: banking credit risk increases in response to energy uncertainty shocks. Over time, these shocks show a progressively rising impact on credit risk, highlighting the growing influence of energy uncertainty on the spread of financial risk.

Suggested Citation

  • Pacelli, Vincenzo & Di Tommaso, Caterina & Foglia, Matteo & Povia, Maria Melania, 2025. "Spillover effects between energy uncertainty and financial risk in the Eurozone banking sector," Energy Economics, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007916
    DOI: 10.1016/j.eneco.2024.108082
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    More about this item

    Keywords

    Energy uncertainty; Credit risk; Banking system; Spillover effect;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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