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

Christian Gross () and Pierre Siklos

No 78, ESRB Working Paper Series from European Systemic Risk Board

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. JEL Classification: C32, C38, C55, F3, G01, G15

Keywords: connectedness; contagion; credit risk; financial-real linkages; large datasets; networks; systemic risk (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-eec, nep-fmk and nep-rmg
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https://www.esrb.europa.eu//pub/pdf/wp/esrb.wp78.pdf (application/pdf)

Related works:
Journal Article: Analyzing credit risk transmission to the nonfinancial sector in Europe: A network approach (2020)
Working Paper: Analyzing credit risk transmission to the non-financial sector in Europe: A network approach (2019)
Working Paper: Analyzing credit risk transmission to the non-financial sector in Europe: a network approach (2019)
Working Paper: Analyzing Credit Risk Transmission to the Non-Financial Sector in Europe: A Network Approach (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:201878

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