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Are banking shocks contagious? Evidence from the eurozone

Citation

Dungey, M and Flavin, TJ and Lagoa-Varela, D, Are banking shocks contagious? Evidence from the eurozone, Journal of Banking and Finance, 112 pp. 1-17. ISSN 0378-4266 (2020) [Refereed Article]


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DOI: doi:10.1016/j.jbankfin.2018.07.010

Abstract

We analyze the transmission of shocks between global banking, domestic banking and the non-financial sector for eleven Eurozone countries. Using a Markov-switching Factor augmented VAR model, we distinguish between contagion, interdependence and decoupling as shock transmission mechanisms during the ‘crisis’ regime. Contagion played a role in propagating global banking shocks to the banking sectors of smaller states, exacerbating the crisis in these countries. In contrast, the non-financial sectors suffered little contagion from either external or domestic banking shocks, and generally managed to decouple from the banking industry – indicative of being able to source alternative financing and shield themselves from the crisis. However, shocks originating in the non-financial sector trigger contagious effects for both the domestic banking sector and, to a lesser extent global banking, thereby acting as a source of fragility for the financial sector during crisis periods.

Item Details

Item Type:Refereed Article
Keywords:contagion, shock transmission, banking crises
Research Division:Economics
Research Group:Applied Economics
Research Field:Macroeconomics (incl. Monetary and Fiscal Theory)
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Macro Labour Market Issues
UTAS Author:Dungey, M (Professor Mardi Dungey)
ID Code:139674
Year Published:2020
Web of Science® Times Cited:1
Deposited By:Economics and Finance
Deposited On:2020-06-25
Last Modified:2020-06-25
Downloads:0

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