Peer-Reviewed Journal Details
Mandatory Fields
Dungey M.;Flavin T.;Lagoa-Varela D.
2020
March
Journal of Banking and Finance
Are banking shocks contagious? Evidence from the eurozone
Published
1 ()
Optional Fields
Banking crises Contagion Shock transmission
112
3
1
17
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.
0378-4266
10.1016/j.jbankfin.2018.07.010
Grant Details