Download this Paper Open PDF in Browser

The Impact of Sovereign Shocks

57 Pages Posted: 17 Nov 2014 Last revised: 21 Jan 2017

Gerardo Manzo

Two Sigma Investments; University of Chicago - Booth School of Business

Antonio Picca

University of Chicago - Booth School of Business

Date Written: October 1, 2016

Abstract

We investigate the interrelationships between macro-systems of governments and financial institutions by studying the dynamic propagation mechanisms of macroeconomic shocks. We propose a novel approach to identify relevant systemic shocks and to classify them into sovereign or banking categories. Our econometric framework quantifies the impact and spillover rates of systemic shocks within and across systems. We find that sovereign shocks have a significant and persistent impact on the probability of a collective banking default, but not vice versa. Finally, we explore sources of systemic fragility, potential mechanisms of shock transmission, and their implications for the real economy.

Keywords: Systemic Risk, Contagion Risk, Banking Risk, Sovereign Risk, Fiscal Space, Narrative Approach, Real Economy

JEL Classification: E44, E50, G21, G28

Suggested Citation

Manzo, Gerardo and Picca, Antonio, The Impact of Sovereign Shocks (October 1, 2016). Available at SSRN: https://ssrn.com/abstract=2524991 or http://dx.doi.org/10.2139/ssrn.2524991

Gerardo Manzo (Contact Author)

Two Sigma Investments ( email )

100 Avenue of the Americas, Floor 16
New York, NY NY 10013
United States

HOME PAGE: http://www.gerardomanzo.com

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://www.gerardomanzo.com

Antonio Picca

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Paper statistics

Downloads
319
Rank
79,047
Abstract Views
1,520