Global systemic risk interdependencies and transitory connectedness networks

Abstract

This work examines the connectedness of financial stress index (FSI) categorical indicators indicating the US, other advanced economies, and emerging economies. In this context, the authors implement two pioneering methodologies, the Diebold-Yilmaz and the frequency connectedness, and compute spillovers among the FSI categorical indicators between January 3, 2000 and January 22, 2021. In doing so, they estimate global financial stress interdependence during financial turbulent episodes such as the global financial crisis ( GFC) and the recent COVID-19 pandemic. Furthermore, they compute overall connectedness of FSI categorical indicators in the short-, medium-, and long-cycle. Overall spillover indexes computed by both methodology create proper signs to prominent financial/geopolitical incidents. Finally, they concentrate on the network connectedness of pairwise spillovers indicating the GFC and the COVID-19 pandemic epochs. The network analysis highlights the key role of equity and volatility channels in catalyzing total spillovers for both of the episodes. © 2023, IGI Global.