The Impact of Sovereign Shocks

46 Pages Posted: 17 Nov 2014 Last revised: 3 Dec 2018

See all articles by Gerardo Manzo

Gerardo Manzo

Kepos Capital

Antonio Picca

The Vanguard Group, Inc.; University of Chicago - Booth School of Business

Date Written: November 30, 2018


This paper studies the dynamic propagation mechanisms of systemic risk shocks within and across macro-systems of governments and financial institutions. We propose a novel approach to identify relevant systemic shocks and to classify them into sovereign or banking categories. We find that sovereign shocks have a significant and persistent impact on the probability of a collective banking default. We also explore channels through which these shocks propagate and identify how sovereign fiscal fragility and banking exposure are relevant mechanisms of shock transmission.

Keywords: Systemic Risk, Contagion Risk, Banking Risk, Sovereign Risk, Fiscal Fragility, Narrative Approach

JEL Classification: E44, E50, G21, G28

Suggested Citation

Manzo, Gerardo and Picca, Antonio, The Impact of Sovereign Shocks (November 30, 2018). Available at SSRN: or

Gerardo Manzo (Contact Author)

Kepos Capital ( email )

620 Eighth Avenue
New York, NY 10018
United States

Antonio Picca

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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