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Systemic risk in the US: Interconnectedness as a circuit breaker

Mardi Dungey, Matteo Luciani and David Veredas

Economic Modelling, 2018, vol. 71, issue C, 305-315

Abstract: We measure systemic risk via the interconnections between the risks facing both financial and real economy firms. SIFIs are ranked by building on the Google PageRank algorithm for finding closest connections. For a panel of over 500 US firms over 2003–2011 we find evidence that intervention programs (such as TARP) act as circuit breakers in crisis propagation. The curve formed by the plot of firm average systemic risk against its variability clearly separates financial firms into three groups: (i) the consistently systemically risky (ii) those displaying the potential to become risky and (iii) those of little concern for macro-prudential regulators.

Keywords: Historical decomposition; DY spillover; Granger causality; Networks (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 G10 (search for similar items in EconPapers)
Date: 2018
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