The Impact of Sovereign Shocks
46 Pages Posted: 17 Nov 2014 Last revised: 3 Dec 2018
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: Suggested Citation