The State Dependent Impact of Bank Exposure on Sovereign Risk

Abstract

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Structural Estimation of Time-Varying Spillovers: an Application to International Credit Risk Transmission

“…However, similar NPL ratios turn out not to be of statistical significance. (Podstawski and Velinov (2018)).…”

“…Third, another potential channel of spillovers is that when a banking sector is in distress, it can trigger fire sales of the government bonds it holds, increasing in turn the credit risk of the sovereign issuer. Fourth, distress for banks may affect their lending activity and therefore impact sovereign risk through a slowdown in economic growth (Podstawski and Velinov (2018)). For the third and fourth channels, we therefore include two exposure variables in the regression set: the share of domestic government bonds and the share of domestic non-bank assets that the banking sector holds.…”

Nonlinear Intermediary Pricing in the Oil Futures Market

“…Note that the latter do not contain any sign restrictions on the coefficients a i (S). Following Podstawski and Velinov (2016), we use the following concentrated out log likelihood function in the maximization step of the EM algorithm:…”

“…ϕ t is either 1 or -1 with probability 0.5. This is a commonly used technique for these types of models (Herwartz andLütkepohl, 2014, Podstawski andVelinov, 2016).…”

Sovereign - Bank Default Risk Linkages During the Greek Financial Crisis and the Role of the Italian Debt

“…Both sides can be at work at the same time. Podstawski and Velinov (2018) find heterogenous and time varying effects of bank exposure on sovereign credit risk in the Euro area. (Note 2) A destabilizing impact -running from bank exposure to sovereign default risk -characterizes Spain, Italy and Portugal, especially during phases of financial turmoil, whereas a stabilizing effect characterizes the EMU core countries.…”