Systemic Risk, Economic Policy Uncertainty and Firm Bankruptcies: Evidence from Multivariate Causal Inference

36 Pages Posted: 1 Jan 2020

See all articles by Mikhail Stolbov

Mikhail Stolbov

Moscow State Institute of International Relations (MGIMO-University)

Maria Shchepeleva

National Research University Higher School of Economics

Date Written: May 1, 2019

Abstract

The paper investigates causal relationships between systemic risk, economic policy uncertainty and firm bankruptcies, conditional on global volatility proxied by the VIX index, in a sample of 15 advanced and major emerging market economies during January 2008-June 2018. We test for Granger causality in time and frequency domains as well as dissect multivariate causal linkages in the dynamic complex system framework by applying a novel technique – convergent cross mapping (Sugihara et al., 2012). Based on strictly coincident results from all the three approaches, we find that systemic risk causes firm exit in Spain, while in the UK and the Netherlands bankruptcies are triggered by economic policy uncertainty. In South Korea, the VIX index causes the firm shutdown. For the rest of the countries, the causality inference provides less robust evidence. We argue that the magnitude of deleveraging by banks with respect to the private nonfinancial sector, proxied by the volatility of credit-toGDP gaps, shapes the presence or absence of causal impact by systemic risk, economic policy uncertainty or the VIX index on bankruptcies.

Keywords: systemic risk, economic policy uncertainty, bankruptcy, Granger causality, convergent cross mapping

JEL Classification: G32, G33, C32

Suggested Citation

Stolbov, Mikhail and Shchepeleva, Maria, Systemic Risk, Economic Policy Uncertainty and Firm Bankruptcies: Evidence from Multivariate Causal Inference (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3502420 or http://dx.doi.org/10.2139/ssrn.3502420

Mikhail Stolbov (Contact Author)

Moscow State Institute of International Relations (MGIMO-University) ( email )

Prospekt Vernadskogo, 76
Moscow, 119454
Russia

Maria Shchepeleva

National Research University Higher School of Economics

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