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Analyzing credit risk transmission to the non-financial sector in Europe: a network approach

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  • Gross, Christian
  • Siklos, Pierre

Abstract

Using variance decompositions in vector auto-regressions (VARs) we model a high-dimensional network of European CDS spreads to assess the transmission of credit risk to the non-financial corporate sector. Our findings suggest a sectoral clustering in the CDS network, where financial institutions are located in the center and non-financial as well as sovereign CDS are grouped around the financial center. The network has a geographical component reflected in differences in the magnitude and direction of real-sector risk transmission across European countries. While risk transmission to the non-financial sector increases during crisis events, risk transmission within the non-financial sector remains largely unchanged. JEL Classification: C01, C32, G01, G15

Suggested Citation

  • Gross, Christian & Siklos, Pierre, 2018. "Analyzing credit risk transmission to the non-financial sector in Europe: a network approach," ESRB Working Paper Series 78, European Systemic Risk Board.
  • Handle: RePEc:srk:srkwps:201878
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    References listed on IDEAS

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    More about this item

    Keywords

    connectedness; contagion; credit risk; financial-real linkages; networks; systemic risk;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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