Network VAR Models to Measure Financial Contagion

16 Pages Posted: 23 Feb 2020

See all articles by Daniel Felix Ahelegbey

Daniel Felix Ahelegbey

University of Pavia, Department of Economics and Management

Paolo Giudici

University of Pavia

Shatha Qamhieh Hashem

An-Najah National University

Date Written: January 25, 2020

Abstract

Financial contagion among countries can arise from different channels, the most important of which are financial markets and bank lending. The paper aims to build an econometric network approach to understand the extent to which contagion spillovers (from one country to another) arise from financial markets, from bank lending, or from both. To achieve this aim we consider a model specification strategy which combines Vector Autoregressive models with network models. The paper contributes to the contagion literature with a model that can consider bank exposures and financial market prices, jointly and not only separately. From an empirical viewpoint, our results show that both bilateral exposures and market prices act as contagion channels in the transmission of shocks arising from a country to international financial markets. While the impact of the former is more stable in time, the latter is more volatile and reacts to a wider variety of events.

Keywords: Financial Contagion, Network Models, VAR, Bank Lending, Financial Markets

JEL Classification: C01, C32, G01,

Suggested Citation

Ahelegbey, Daniel Felix and Giudici, Paolo and Hashem, Shatha Qamhieh, Network VAR Models to Measure Financial Contagion (January 25, 2020). Available at SSRN: https://ssrn.com/abstract=3525486 or http://dx.doi.org/10.2139/ssrn.3525486

Daniel Felix Ahelegbey (Contact Author)

University of Pavia, Department of Economics and Management ( email )

Via San Felice 7
Pavia, Lombardia 27100
Italy
+393888931128 (Phone)

HOME PAGE: http://sites.google.com/site/danielfelixahey/home

Paolo Giudici

University of Pavia ( email )

Via San Felice 7
27100 Pavia, 27100
Italy

Shatha Qamhieh Hashem

An-Najah National University

Nablus
Palestine
Nablus, PA 00972
Palestine

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