Assessing the Impact of Country-Specific Sovereign Risk on Financial and Banking System in EMU: the Role of Italy

Capasso Salvatore (), D’Uva Marcella,, Cristiana Fiorelli and Napolitano Oreste
Additional contact information
Capasso Salvatore: Università di Napoli Parthenope, ISMed-CNR, and CSEF., https://csef.it/people/salvatore-capasso/
D’Uva Marcella,: Università di Napoli Parthenope
Napolitano Oreste: Università di Napoli Parthenope

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: This work investigates the bank-sovereign risk transmission across EMU countries, assessing how sovereign risk in Italian government bonds can affect the sovereign and credit risk of non-stressed countries. We employ a GVAR technique and measure spatial proximity by using the cross-country “distance” in debt-to-GDP ratio. Our results confirm the hypothesis of a sovereign-bank loop: a shock in Credit Default Swaps spread of one country propagates to other CDS and bank indices. The effects are stronger in more fragile financial systems. Overall, our findings highlight the importance of spillover effects and suggest a monetary policy tailored on “back-door” propagation of shocks.

Keywords: sovereign CDS; GVAR; spillovers; euro area. (search for similar items in EconPapers)
JEL-codes: C31 C58 E44 (search for similar items in EconPapers)
Date: 2022-10-24
New Economics Papers: this item is included in nep-ban, nep-cba and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.csef.it/WP/wp654.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:654

Access Statistics for this paper

More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC.
Bibliographic data for series maintained by Dr. Maria Carannante ().