Analyzing credit risk transmission to the non-financial sector in Europe : a network approach

by Christian Gross, Pierre Siklos

Using variance decompositions in vector auto-regressions (VARs) we model a high-dimensional network of European CDS spreads to assess the transmission of credit risk to the non-financial corporate sector. Our findings suggest a sectoral clustering in the CDS network, where financial institutions are located in the center and non-financial as well as sovereign CDS are grouped around the financial center. The network has a geographical component reflected in differences in the magnitude and direction of real-sector risk transmission across European countries. While risk transmission to the non-financial sector increases during crisis events, risk transmission within the non-financial sector remains largely unchanged.

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Year of publication:	[2018]
Authors:	Gross, Christian ; Siklos, Pierre L.
Publisher:	Frankfurt am Main, Germany : European Systemic Risk Board
Subject:	networks \| financial-real linkages \| connectedness \| systemic risk \| credit risk \| contagion \| Kreditrisiko \| Credit risk \| Ansteckungseffekt \| Contagion effect \| Unternehmensnetzwerk \| Business network \| Systemrisiko \| Systemic risk \| EU-Staaten \| EU countries \| Finanzkrise \| Financial crisis \| Europa \| Europe \| Spillover-Effekt \| Spillover effect \| Risikomanagement \| Risk management