Title: The transmission of sovereign and bank credit risk to the non-financial corporate sector in Europe
Authors: Christian Gross - University of Muenster (Germany) [presenting]
Martin T Bohl - University of Muenster (Germany)
Pierre Siklos - Wilfrid Laurier University (Canada)
Abstract: A high-dimensional network of European CDS spreads is modeled to assess the transmission of credit risk to the non-financial corporate sector in Europe. We build on a previous network connectedness approach, which uses variance decompositions in vector autoregressions (VARs) to characterize the dependence structure in the panel of CDS spreads. We derive several connectedness measures that allow us to quantify the degree of credit risk spillovers to non-financial corporations from sovereigns and banks in the Eurozone. A special emphasis of our analysis is on the network structure of CDS spreads during the Global Financial Crisis and the European Debt Crisis.