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What is mine is yours: Sovereign risk transmission during the European debt crisis

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  • Greenwood-Nimmo, Matthew
  • Nguyen, Viet Hoang
  • Shin, Yongcheol

Abstract

We develop an empirical network model to characterize the density of bilateral sovereign credit risk spillovers during the European debt crisis. We show that the spillover density is often asymmetric with heavy tails and that its location and shape vary strongly and systematically in relation to published indicators of systemic stress. Using auxiliary panel data models, we show that the intensity of bilateral spillovers is related to the portfolio investment exposures among country pairs. Because our spillover statistics can be updated daily, they represent a valuable supplement to existing weekly and monthly measures of systemic stress.

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  • Greenwood-Nimmo, Matthew & Nguyen, Viet Hoang & Shin, Yongcheol, 2023. "What is mine is yours: Sovereign risk transmission during the European debt crisis," Journal of Financial Stability, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:finsta:v:65:y:2023:i:c:s1572308923000037
    DOI: 10.1016/j.jfs.2023.101103
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    More about this item

    Keywords

    Sovereign credit risk network; Credit default swaps (CDS); Contagion and systemic stress; Network models and connectedness; Spillover density;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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