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

Gianluca Cafiso and Giulia Rivolta

No 11816, CESifo Working Paper Series from CESifo

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.

Keywords: sovereign spread; banks; volatility; connectedness measures; spillovers; time-varying parameters; VAR. (search for similar items in EconPapers)
JEL-codes: E60 G01 G21 H12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11816

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