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FV-84 Systemic Risk Dynamics in Euro Area Sovereign Debt Markets
Third-party funded project
Project title FV-84 Systemic Risk Dynamics in Euro Area Sovereign Debt Markets
Principal Investigator(s) Zimmermann, Heinz
Co-Investigator(s) Ters, Kristyna
Organisation / Research unit Departement Wirtschaftswissenschaften / Finanzmarkttheorie (Zimmermann)
Department Departement Wirtschaftswissenschaften / Finanzmarkttheorie (Zimmermann)
Project start 01.01.2020
Probable end 31.12.2020
Status Completed
Abstract

In this project, we will employ a network model based on the methodology of a VAR Variance decomposition in order to understand the dynamics of sovereign risk interconnectedness. Macroprudential regulation views systemic risk as dependent on collective behaviour (endogenous), therefore, a network methodology is essential. We will investigate the magnitude and dynamics within the network before the unconventional policy or regulatory measure (called “events”) and compare it with the dynamics estimated in a short time window after the measure was adapted.
We are able to work with very short time windows around an event, as we operate with intraday data for bond markets and CDS markets. Also, having data for credit risk from both, the cash and derivative market, enables us to identify which market was leading in the contagion (systemic risk spillover) within the network. E.g. was the risk transmission taking place through the bond market or the derivative market from one country to another?

Financed by Foundations and Associations
   

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29/03/2024