Cross-Sectoral Regulatory Influences on Systemic Risk: Lessons from Brazil

Abstract

This paper explores the multifaceted impact of regulatory changes on systemic risk in the affected sector and their contagion effect on other regulated industries. Focusing on the effects of an unexpected legislation change aimed at reducing electricity costs in Brazil, we analyze its implications for the electricity sector and beyond. Using Synthetic-Control and Diff-in-Diff methodologies, we find that event not only increased systemic risk within the electricity sector but also influenced others regulated sectors, highlighting the interconnectedness of regulatory environments. Our findings underscore the importance of understanding public policy impacts on regulated sectors, highlighting risk perception and regulatory frameworks.

Keywords: Regulatory impact, policy evaluation, contagion effect, Synthetic Control, Difference-in-differences, Cross-sectoral impact