Is the international propagation of financial shocks non-linear?

Favero, Carlo A.; Giavazzi, Francesco

doi:10.1016/s0022-1996(01)00139-8

Cited by 242 publications

(196 citation statements)

References 6 publications

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“…Indeed, previous studies have focused on emerging markets where exchange rate fluctuations render difficult the identification of the effect of credit rating news. To do so, we use a VAR framework inspired from Favero and Giavazzi (2002) using dummies to capture the effect of sovereign rating news on various financial markets across countries. 3…”

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confidence: 99%

“…Our approach combines event study techniques with the interdependence literature (see inter alia Favero and Giavazzi, 2002) and allows identifying which markets and countries are affected by any given sovereign rating downgrade. We are also able to capture the dynamic spillover effect of rating news on different asset classes across countries by controlling for the lagged effects of the fluctuations in those assets.…”

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confidence: 99%

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Sovereign Rating News and Financial Markets Spillovers: Evidence From the European Debt Crisis

Candelon

Sy²,

Arezki³

2011

IMF Working Papers

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper examines the spillover effects of sovereign rating news on European financial markets during the period 2007-2010. Our main finding is that sovereign rating downgrades have statistically and economically significant spillover effects both across countries and financial markets. The sign and magnitude of the spillover effects depend both on the type of announcements, the source country experiencing the downgrade and the rating agency from which the announcements originates. However, we also find evidence that downgrades to near speculative grade ratings for relatively large economies such as Greece have a systematic spillover effects. Rating-based triggers may help explain these results. Terms of use: Documents in EconStor mayJEL-Code: G150, F360.

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Sovereign Rating News and Financial Markets Spillovers: Evidence From the European Debt Crisis

Candelon

Sy²,

Arezki³

2011

IMF Working Papers

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“…This paper tests for the existence of financial contagion during this crisis, defined as the international transmission of country-specific shocks beyond the normal channels of financial interdependence. Since contagion relates purely to countryspecific shocks, we combine the standard contagion test of Favero and Giavazzi (2002) with an innovative narrative approach to separate out global and euro area shocks from country-specific shocks. Financial contagion has been widespread during the crisis in the euro area.…”

Section: Introductionmentioning

confidence: 99%

“…We follow the approach put forward by Favero and Giavazzi (2002) to model financial market interdependence and to test for the existence of financial contagion. This approach addresses several pitfalls identified in other studies which are outlined in our review of the literature.…”

Section: Introductionmentioning

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Deciphering financial contagion in the euro area during the crisis

Tola

Wälti

2015

The Quarterly Review of Economics and Finance

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Financial market interdependence has been at the epicenter of the crisis in the euro area. This paper tests for the existence of financial contagion during this crisis, defined as the international transmission of country-specific shocks beyond the normal channels of financial interdependence. Since contagion relates purely to countryspecific shocks, we combine the standard contagion test of Favero and Giavazzi (2002) with an innovative narrative approach to separate out global and euro area shocks from country-specific shocks. Financial contagion has been widespread during the crisis in the euro area. About 80 percent of country-specific shocks are contagious. We also find significant evidence of flight-to-safety effects between the core and the periphery of the euro area. Global and euro area shocks have been important drivers of sovereign bond yields in the euro area.JEL Classification: E44; F34; F36; G01; G12.

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Shift‐contagion in energy markets and global crisis

Mili

Sahut

Teulon

2020

Journal of Forecasting

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This paper presents an analysis of shift‐contagion in energy markets, testing whether linkages between returns in energy markets increase during crisis periods. The research presented herein demonstrates how common movement between energy markets increases due to (i) shift‐contagion across energy markets, reflected by structural transmission of shocks across markets and (ii) larger common shocks operating through standard cross‐market interdependences. A regime‐switching model was developed to detect shift‐contagion across energy markets. In the approach adopted herein, the occurrence of shift‐contagion is endogenously estimated rather than being exogenously assigned. The results show that shift‐contagion has been a major feature of energy markets over the last decade. Evidence is presented which demonstrates that the linkages between energy markets do not appear to be stable. These results are remarkably accurate for forecasting Brent and natural gas for horizons for up to 50 days. Conversely, for WTI (West Texas Intermediate oil) and coal, the model performs well only for forecasting very short horizons (up to 20 days). For all products, the model shows significant biases for long horizons.

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Is the international propagation of financial shocks non-linear?

Cited by 242 publications

References 6 publications

Sovereign Rating News and Financial Markets Spillovers: Evidence From the European Debt Crisis

Sovereign Rating News and Financial Markets Spillovers: Evidence From the European Debt Crisis

Deciphering financial contagion in the euro area during the crisis

Shift‐contagion in energy markets and global crisis

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