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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: Using variance decompositions in vector auto-regressions (VARs) we model a high-dimensional network of European CDS spreads to assess the transmission of credit risk to the non-financial corporate sector. Our findings suggest a sectoral clustering in the CDS network, where financial institutions are located in the center and non-financial as well as sovereign CDS are grouped around the financial center. The network has a geographical component reflected in differences in the magnitude and direction of real-sector risk transmission across European countries. While risk transmission to the non-financial sector increases during crisis events, risk transmission within the non-financial sector remains largely unchanged. JEL Classification: C01, C32, G01, G15

Keywords: connectedness; contagion; credit risk; financial-real linkages; networks; systemic risk (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-fmk and nep-rmg
Date: 2018-07
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Working Paper: Analyzing Credit Risk Transmission to the Non-Financial Sector in Europe: A Network Approach (2018) Downloads
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