Structural Estimation of Time-Varying Spillovers: An Application to International Credit Risk Transmission
Lukas Boeckelmann and
Working papers from Banque de France
We propose a novel approach to quantify spillovers on financial markets based on a structural version of the Diebold-Yilmaz framework. Key to our approach is a SVAR-GARCH model that is statistically identified by heteroskedasticity, economically identified by maximum shock contribution and that allows for time-varying forecast error variance decompositions. We analyze credit risk spillovers between EZ sovereign and bank CDS. Methodologically, we find the model to better match economic narratives compared with common spillover approaches and to be more reactive than models relying on rolling window estimations. We find, on average, spillovers to explain 37% of the variation in our sample, amid a strong variation of the latter over time.
Keywords: CDS; spillover; sovereign debt; systemic risk; SVAR; identification by heteroskedasticity (search for similar items in EconPapers)
JEL-codes: C58 G01 G18 G21 (search for similar items in EconPapers)
Pages: 61 pages
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-ore and nep-rmg
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Working Paper: Structural Estimation of Time-Varying Spillovers:an Application to International Credit Risk Transmission (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:798
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