On systemic risk contagion in the euro area: Evidence from frequency connectedness and the DY approaches

Abstract

This study analyzes systemic risk contagion across the euro area by employing the Diebold-Yilmaz and the frequency connectedness methodologies with data from January 1, 1999, to January 25, 2021. We use the daily Composite Indicator of Systemic Stress (CISS) series for 11 countries in the euro area developed by Hollo = et al. (2012) and calculate the overall connectedness between the series by employing two pioneering approaches. Additionally, we estimate the short-, medium-, and long-cycle connectedness of systemic risk over the study period that covers three financial burst periods: the global financial crisis (GFC), the European sovereign debt crisis (ESDC), and the COVID-19 pandemic. Overall, spillover indexes notably rise around well-known financial/geopolitical events over the study period. Finally, we examine the network connectedness of systemic risk spillovers during the GFC, the ESDC, and COVID-19 periods and thereby compare them. Our results highlight an efficient regulatory mechanism to control systemic risk contagion. Copyright (c) 2021, Borsa _Istanbul Anonim S , irketi. Production and hosting by Elsevier B.V.