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Christian Gross

19 July 2018
WORKING PAPER SERIES - No. 78
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Abstract
We use a factor model and elastic net shrinkage to model a high-dimensional network of European CDS spreads. Our empirical approach allows us to assess the joint transmission of bank and sovereign risk to the non-financial corporate sector. Our findings identify a sectoral clustering in the CDS network, where financial institutions are in the center and non-financial entities as well as sovereigns are grouped around the financial center. The network has a geographical component reflected in different patterns of real-sector risk transmission across countries. Our framework also provides dynamic estimates of risk transmission, a useful tool for systemic risk monitoring.
JEL Code
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
C38 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Classification Methods, Cluster Analysis, Principal Components, Factor Models
C55 : Mathematical and Quantitative Methods→Econometric Modeling→Modeling with Large Data Sets?
F3 : International Economics→International Finance
G01 : Financial Economics→General→Financial Crises
G15 : Financial Economics→General Financial Markets→International Financial Markets
11 February 2020
ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 10
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Abstract
This report elucidates the risk channels for EU economies associated with international financial integration and provides an overview of the macroprudential policy options that are available to address these risks.1 It builds on the main insights from the rich academic literature developed recently to create a narrative of the role of global variables for the conduct of macroprudential policy at a national level. The report reviews the evidence on the cross-border spillovers of domestic macroprudential policies (MPPs). It also highlights key policy areas for making macroprudential policy as effective as possible. Annex 1 presents findings from several new research papers across the European System of Central Banks.
25 November 2020
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 2, 2020
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Abstract
We examine some aspects of how the low-for-even-longer interest rate environment may affect bank lending margins and overall financial stability. We find evidence that margins fall more in response to declines in nominal short-term rates when these are low to begin with. The compression of margins reflects the sluggish response to further policy rate cuts of deposit rates as these approach the zero lower bound. Moreover, the analysis indicates that bank margins and overall profitability are influenced by both the level of real rates and, more materially, the level of inflation expectations embedded in nominal rates, which reflects the fact that bank profits are partly akin to seigniorage.
JEL Code
G2 : Financial Economics→Financial Institutions and Services
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
19 May 2021
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2021
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Abstract
This box sheds light on how the structure of cross-sectoral credit risk transmission has evolved since the start of the pandemic. It does so by using high-frequency, firm-level data on expected default frequencies to estimate the direction and intensity of credit risk spillovers between the sovereign, bank, non-bank financial and corporate sectors. It shows that the credit risk interdependency of euro area financials and corporates with sovereigns has increased markedly in the wake of the pandemic strengthening the sovereign-bank-corporate nexus. It finds that risk transmission from the corporate sector to sovereigns increased substantially and remained elevated between March and October 2020. It also shows that risk transmission from sovereigns to other sectors spiked immediately after the pandemic but was relatively more contained and short-lived thanks to the ECB policy action.
JEL Code
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
F3 : International Economics→International Finance
G15 : Financial Economics→General Financial Markets→International Financial Markets