Analyzing credit risk transmission to the nonfinancial sector in Europe: A network approach

Summary We use a factor model and elastic net shrinkage to model a high‐dimensional network of European credit default swap (CDS) spreads. Our empirical approach allows us to assess the joint transmission of bank and sovereign risk to the nonfinancial corporate sector. Our findings identify a sector...

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Vydáno v:Journal of applied econometrics (Chichester, England) Ročník 35; číslo 1; s. 61 - 81
Hlavní autoři: Gross, Christian, Siklos, Pierre L.
Médium: Journal Article
Jazyk:angličtina
Vydáno: Chichester Wiley Periodicals Inc 01.01.2020
Témata:
Clustering
Credit
Credit default swaps
Credit risk
Econometrics
Economic models
Empirical analysis
Financial institutions
Interlocking directorates
Risk
Risk analysis
Spread
Europe
ISSN:0883-7252, 1099-1255
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Shrnutí:Summary We use a factor model and elastic net shrinkage to model a high‐dimensional network of European credit default swap (CDS) spreads. Our empirical approach allows us to assess the joint transmission of bank and sovereign risk to the nonfinancial corporate sector. Our findings identify a sectoral clustering in the CDS network, where financial institutions are in the center and nonfinancial 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.
Bibliografie:ObjectType-Article-1
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ISSN:0883-7252
1099-1255
DOI:10.1002/jae.2726