The Role of Systemic Risk Spillovers in the Transmission of Euro Area Monetary Policy

35 Pages Posted: 16 Dec 2021

Date Written: December 1, 2021


This paper empirically investigates the transmission of systemic risk across the Euro Area by employing a Global VAR model. We find that a union aggregate systemic risk shock results in a sharp decline in output, with two thirds of the response to be attributed to cross-country spillovers. The results indicate that peripheral economies have a disproportionate importance in spreading systemic risk compared to core countries. Then, we incorporate high-frequency monetary surprises into the model and we find evidence of the risk-taking channel of monetary policy. However, the relationship is reversed in the period of the ZLB, when expansionary shocks mitigate systemic risk. Cross-country spillovers account for a significant fraction (17.4%) of systemic risk responses’ variation. We also show that near term guidance reduces systemic risk, whereas the initiation of the QE program has the opposite effect. Finally, the effectiveness of monetary policy exhibits significant asymmetries, with core countries driving the union response.

Keywords: Eurozone, global VAR model, systemic risk

JEL Classification: C32, E44, F36, F45

Suggested Citation

Skouralis, Alexandros, The Role of Systemic Risk Spillovers in the Transmission of Euro Area Monetary Policy (December 1, 2021). ESRB: Working Paper Series 2021/129, Available at SSRN: or

Alexandros Skouralis (Contact Author)

City University London ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

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