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Network VAR models to measure financial contagion

Daniel Felix Ahelegbey, Paolo Giudici and Shatha Qamhieh Hashem

The North American Journal of Economics and Finance, 2021, vol. 55, issue C

Abstract: Financial contagion among countries can arise from different channels, the most important of which are financial markets and bank lending. The paper aims to build an econometric network approach to understand the extent to which contagion spillovers (from one country to another) aris from financial markets, from bank lending, or from both. To achieve this aim we consider a model specification strategy which combines Vector Autoregressive models with network models. The paper contributes to the contagion literature with a model that can consider bank exposures and financial market prices, jointly and not only separately. From an empirical viewpoint, our results show that both bilateral exposures and market prices act as contagion channels in the transmission of shocks arising from a country to other countries.

Keywords: Bayesian Inference; Financial Contagion; Network Models; VAR; Bank Lending; Financial Markets (search for similar items in EconPapers)
JEL-codes: C01 C32 G01 G12 G21 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Network VAR models to Measure Financial Contagion (2020) Downloads
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DOI: 10.1016/j.najef.2020.101318

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