 Global financial interconnectedness: A non-linear assessment of the uncertainty channelBertrand Candelon, Laurent Ferrara and Marc Joëts No GRU_2019_001, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit Abstract: The role of uncertainty in the global economy is now widely recognized by policy-makers but its specific effects on the international financial system are less understood. In this pa- per we assess the impact of uncertainty fluctuations on the interconnectedness within the international system of equity prices. In this respect, we extend the measure of connected- ness put forward by Diebold and Yilmaz (2009) by allowing for non-linear effects through the estimation of a non-linear Threshold VAR model whose regimes depend on the level on uncertainty. Results show that high uncertainty tends to generate more connectedness among equity indexes of a set of advanced and emerging countries. From an economic pol- icy point of view, this result suggests that in the presence of high uncertainty, an adverse financial shock in a specific country is likely to propagate more widely and more strongly to the whole financial system. This result advocates for a close real-time monitoring of uncertainty measures. Keywords: Finance; Financial markets, Network interconnectedness, Uncertainty, Non-linear model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2019_001 Access Statistics for this paper More papers in GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit Contact information at EDIRC. |
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