We investigate the comovement between sovereign and bank credit risk in the Euro area over the period 2008-2010. We construct two synthetic credit risk measures of the European sovereign and banking sectors that can be used for macro-prudential supervision. We estimate a Vector error- correction model and we obtain empirical evidence of a cointegration relationship between sovereign and bank credit risk. Moreover, we find that deviations from this equilibrium relationship are adjusted through the banking sector. Finally, impulse response functions show that it is possible to distinguish between a permanent sovereign shock and a transitory banking shock.

The co-movement between sovereign and bank credit risk during the financial crisis: the case of the Euro Area / Nucera, FEDERICO CALOGERO. - In: RIVISTA BANCARIA. MINERVA BANCARIA. - ISSN 1594-7556. - 6:(2012), pp. 7-34.

The co-movement between sovereign and bank credit risk during the financial crisis: the case of the Euro Area

NUCERA, FEDERICO CALOGERO
2012

Abstract

We investigate the comovement between sovereign and bank credit risk in the Euro area over the period 2008-2010. We construct two synthetic credit risk measures of the European sovereign and banking sectors that can be used for macro-prudential supervision. We estimate a Vector error- correction model and we obtain empirical evidence of a cointegration relationship between sovereign and bank credit risk. Moreover, we find that deviations from this equilibrium relationship are adjusted through the banking sector. Finally, impulse response functions show that it is possible to distinguish between a permanent sovereign shock and a transitory banking shock.
Financial Stability; Sovereing Sector Credit Risk; Banking Sector Credit Risk; CDS; Portfolio Credit Risk Management
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/78264
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