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The role of contagion in the transmission of financial stress

Miguel C. Herculano

No 81, ESRB Working Paper Series from European Systemic Risk Board

Abstract: I examine the relevance of contagion in explaining financial distress in the US banking system by identifying the component of bank level probabilities that is due to contagion. Identification is achieved after controlling for macrofinancial and bank specific shocks that have similar consequences to contagion. I use a Bayesian spatial autoregressive model that allows for time-dependent network interactions, and find that bank default likelihoods depend, to a large extent, on peer effects that account on average for approximately 35 per cent of total distress. Furthermore, I find evidence of significant heterogeneity amongst banks and some institutions to be systemically more important that others, in terms of peer effects. JEL Classification: E44, G01, C11, G21

Keywords: Bayesian methods; contagion; spatial econometrics; systemic risk (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-ure
Date: 2018-08
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:201881

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