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Interconnectedness of systemic risk in the Chinese economy: the Granger causality and CISS indicator approach

Author

Listed:
  • Omid Farkhondeh Rouz

    (University of Tabriz)

  • Hossein Sohrabi Vafa

    (Allameh Tabataba’i’University)

  • Arash Sioofy Khoojine

    (Yibin University)

  • Sajjad Pashay Amiri

    (Tarbiat Modares University)

Abstract

In this study, systemic risk in the Chinese economy between 2012 and 2023 has been investigated. The entire dataset is divided into three time windows to help comprehend the dynamics of financial markets. Deploying the tools of graph theory and Granger causality, as well as the composite indicator of systemic stress (CISS) on five financial markets including money market, bond market, equity market, foreign exchange market, and financial intermediaries, the systemic risk propagation has been analyzed among these financial markets. The results reveal that the increase in volatility in the foreign exchange market can be attributed to the rise in volatility and risk in the equity market, bond market, and financial intermediaries. Additionally, the examination of the financial markets shows significant fluctuations in the years 2015 and 2022. Consequently, examining these two periods determined that financial turbulence in the money market was the primary source of systemic risk. Moreover, it can have widespread propagation effects on other financial markets. These findings also emphasized the importance of monitoring and controlling the money market and its interactions with other parts of the financial system to reduce propagation risks.

Suggested Citation

  • Omid Farkhondeh Rouz & Hossein Sohrabi Vafa & Arash Sioofy Khoojine & Sajjad Pashay Amiri, 2024. "Interconnectedness of systemic risk in the Chinese economy: the Granger causality and CISS indicator approach," Risk Management, Palgrave Macmillan, vol. 26(2), pages 1-24, May.
    • Handle: RePEc:pal:risman:v:26:y:2024:i:2:d:10.1057_s41283-024-00142-8
    DOI: 10.1057/s41283-024-00142-8
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    1. Lin Xiao & Arash Sioofy Khoojine, 2024. "Dynamic Anomaly Detection in the Chinese Energy Market During Financial Turbulence Using Ratio Mutual Information and Crude Oil Price Movements," Energies, MDPI, vol. 17(23), pages 1-22, November.

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    More about this item

    Keywords

    Systemic risk; Risk propagation; CISS indicator; Granger causality; Financial turbulence; Chinese economy;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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