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The changing international network of sovereign debt and financial institutions

Mardi Dungey (), John Harvey () and Vladimir Volkov ()
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John Harvey: Tasmanian School of Business & Economics, University of Tasmania, http://www.utas.edu.au/business-and-economics
Vladimir Volkov: Tasmanian School of Business & Economics, University of Tasmania, http://www.utas.edu.au/profiles/staff/business-and-economics/vladimir-volkov

No 2017-04, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: We develop a theoretical and empirical framework for the connections between global financial and sovereign CDS markets. The transmission of shocks is shown to affect the systemic default probability of the international network. The network is found to be "robust but fragile", meaning that a shock can result in the propagation of crises. Between 2003 and 2013, the probability of default in the network in the face of potentially poor investment outcomes and/or sovereign bond haircuts changes sub-stantially. The results suggest that it is the interconnectedness of the financial and sovereign debt markets that provides increased protection against financial fragility.

Keywords: network; sovereign debt; financial institutions; systemic risk; contagion (search for similar items in EconPapers)
JEL-codes: G01 C58 C31 (search for similar items in EconPapers)
Date: 2017
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Published by the University of Tasmania. Discussion paper 2017-04

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http://eprints.utas.edu.au/23500/1/2017_04_Dungey_Harvey_Volkov.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:tas:wpaper:23500

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