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Working Paper
Flavin, T.J. and D. Lagoa-Varela
2016
April
Are Banking Shocks Contagious? Evidence from the Eurozone
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We test for contagion between banking stocks – global and domestic – and the domestic non-financial sector for eleven Eurozone countries. Using a Markov-switching Factor augmented VAR (MS-FAVAR) model, we assess changes to the transmission mechanism of shocks as we move from ‘normal’ market conditions to a high-volatility, ‘crisis’ regime. Results confirm the role of contagion in propagating shocks between the global and domestic banking sectors but show that the non-financial sector suffered little contagion. In general, the non-financial sectors appear to ‘de-couple’ from the global and domestic banking sectors.
Maynooth University
https://ideas.repec.org/p/may/mayecw/n268-16.pdf.html
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