Connectedness and systemic risk spillovers analysis of Chinese sectors based on tail risk network

Heterogeneous market structure and systemic risk: Evidence from dual banking systems

In this paper we jointly model financial and real components of sovereign risk, by means of correlated stochastic processes, and apply the model to Euro Area countries. For each country we consider, as a target measure, the Debt/GDP ratio. We model the time dynamics of both the Debt and the GDP by means of a linear combination of two stochastic equations: an Euro Area systematic process and a country-specific idiosyncratic process. Doing so, we provide an early warning predictive model of sovereign debt sustainability, considering both the financial and the real economy sides, and in terms of both common and country-specific factors. We provide an estimation procedure for the parameters of the processes, which allows to calculate the implied probabilities of default for each country. The empirical findings show a clear clustering effect between northern and southern countries, especially on the financial side. The inclusion of the GDP growth rate in the derivation of default probabilities partially change...

Sovereign risk in the Euro area: a multivariate stochastic process approach

We propose a novel systemic risk measurement model, based on stochastic processes, correlation networks and conditional probabilities of default.For each country we consider three different spread measures, one for each sector of the economy (sovereigns, corporates, banks), and we model each of them as a linear combination of two stochastic processes: a country-specific idiosyncratic component and a common systematic factor. We then build a partial correlation network model, and by combining it with the spread measures we derive the conditional default probabilities of each sector. Comparing them with the unconditional ones, we obtain the CoRisk, which measures the variation in the probability of default due to contagion effects. Our measurement model is applied to understand the time evolution of systemic risk in the economies of the European monetary union, in the recent period. The results show that, overall, the sovereign crisis has increased systemic risks more than the financial crisis. In addition, peripheral countries turn out to be exporters, rather than importers of systemic risk, and, conversely, core countries.

/pdf/corisk-measuring-systemic-risk-through-default-probability-2rr0dt3mqa.pdf

CoRisk: measuring systemic risk through default probability contagion

This study examines the impact of ECB’s monetary policy decisions on the state of financial stability in Eurozone countries in the form of systemic risk in the banking sector. We argue that the environment of low interest rates encourages bank risk taking and increases systemic risk. We employ time-varying parameter structural vector autoregressive model to test the response of systemic risk measured by the market-based SRISK indicator to changes in monetary policy based on official ECB statistics. Our results indicate that unconventional monetary policy in form of quantitative easing further escalates financial instability in Eurozone countries.

The Impact of the ECB Monetary Policy on Systemic Risk Changes in Eurozone

Which are the SIFIs? A Component Expected Shortfall (CES) Approach to Systemic Risk

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Which are the SIFIs? A Component Expected Shortfall (CES) Approach to Systemic Risk