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Analyzing credit risk transmission to the non-financial sector in Europe: A network approach

Christian Gross () and Pierre Siklos ()

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We use a factor model and elastic net shrinkage to model a high-dimensional network of European CDS spreads. Our empirical approach allows us to assess the joint transmission of bank and sovereign risk to the non-financial corporate sector. Our findings identify a sectoral clustering in the CDS network, where financial institutions are in the center and non-financial entities as well as sovereigns are grouped around the financial center. The network has a geographical component reflected in different patterns of real-sector risk transmission across countries. Our framework also provides dynamic estimates of risk transmission, a useful tool for systemic risk monitoring.

Keywords: networks; financial-real linkages; connectedness; systemic risk; credit risk; contagion; large datasets (search for similar items in EconPapers)
JEL-codes: C32 C38 C55 F3 G01 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-rmg
Date: 2019-06
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https://cama.crawford.anu.edu.au/sites/default/fil ... 019_gross_siklos.pdf (application/pdf)

Related works:
Working Paper: Analyzing credit risk transmission to the non-financial sector in Europe: a network approach (2019) Downloads
Working Paper: Analyzing Credit Risk Transmission to the Non-Financial Sector in Europe: A Network Approach (2018) Downloads
Working Paper: Analyzing credit risk transmission to the non-financial sector in Europe: a network approach (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2019-43

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