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THE FINANCIAL CONNECTEDNESS BETWEEN EUROZONE CORE AND PERIPHERY: A DISAGGREGATED VIEW

Published online by Cambridge University Press:  31 January 2019

Georgios Magkonis  and
Andreas Tsopanakis
Georgios Magkonis
Affiliation:
University of Portsmouth
Andreas Tsopanakis*
Affiliation:
Cardiff University
*
Address correspondence to: Andreas Tsopanakis, Room F08, Aberconway Building, Cardiff Business School, Colum Dr, CF10 3EU, Cardiff, UK. e-mail: TsopanakisAG@cardiff.ac.uk. Phone: +44(0)2920876545.
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Abstract

This paper examines the financial stress interconnectedness among Greece, Ireland, Italy, Portugal, and Spain (GIIPS) economies and Germany. Based on market-level financial stress indices, we examine the stress transmission process as well as the causal network relationships in banking sector, bond, money, and stock markets. The period under investigation, 2001–2013, allows to test the effects of the 2007–2009 financial crisis as well as the subsequent European sovereign crisis. Using two alternative techniques for connectedness analysis, our evidence suggests that the peripheral economies of Italy and Spain play a highly significant role in the stress transmission in all markets, especially in the cases of banks and equity markets. Moreover, we visualize our results using network analysis. Contrary to common wisdom, Portugal, Ireland, and mainly Greece do not seem to have an important role in amplifying stress levels.

Keywords

EurozoneStress TransmissionConnectedness AnalysisSpilloversNetworks

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Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 7 , October 2020 , pp. 1674 - 1699
Copyright
© Cambridge University Press 2019

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