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Spillovers Between Sovereign Bonds and the Banking Sector: Evidence from Italy

Author

Listed:
  • Gianluca Cafiso
  • Giulia Rivolta

Abstract

This study examines the relationship between sovereign spreads and banks in terms of risk transmission, using the seven largest Italian banks as a sample over the period from 2003 to 2023. Our objective is to quantify and compare volatility spillovers, and to investigate whether bank-specific characteristics explain them. We perform a dynamic connectedness analysis based on the estimation of a vector autoregression with time-varying parameters. Our results suggest that, with the exception of severe crisis periods, banks tend to transmit more spillovers than they absorb. Moreover, the magnitude of these spillovers is influenced by factors such as capital adequacy and the structure of banks' portfolios.

Suggested Citation

  • Gianluca Cafiso & Giulia Rivolta, 2025. "Spillovers Between Sovereign Bonds and the Banking Sector: Evidence from Italy," CESifo Working Paper Series 11816, CESifo.
    • Handle: RePEc:ces:ceswps:_11816
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    More about this item

    Keywords

    sovereign spread; banks; volatility; connectedness measures; spillovers; time-varying parameters; VAR.;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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