Financial Stress relationships among European Countries An R-vine Copula approach.pdf (846.83 kB)

Financial stress relationships among Euro area countries: an R-vine copula approach

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journal contribution
posted on 30.07.2020, 10:42 by Dalu Zhang, Meilan Yan, Andreas Tsopanakis
One of the biggest challenges of keeping Euro area financial stability is the negative co-movement between the vulnerability of public finance, the financial sector, security markets stresses as well as economic growth, especially in peripheral economies. This paper utilizes a ARMA-GARCH based R-vine copula method to explore tail dependance between the Financial Stress Indices of 11 euro area countries with an aim of understanding how financial stress are interacting with each other. We find larger economies in the Euro area tend to have closer upper tail dependence in terms of positive shocks, while smaller economies tend to have closer lower tail dependence with respect to negative shocks. The R-vine copula results underline the complex dynamics of financial stress relations existing between Euro Area economies. The estimated R-vine shows Spain, Italy, France and Belgium are the most inter-connected nodes which underlying they might be more efficient targets to treat in order to achieve a quicker stabilizing. Our results relate to the fact that Eurozone is not a unified policy making area, therefore, it needs to follow divergent policies for taming the effects of financial instability to different regions or groups of economies that are more interconnected.

History

School

  • Business and Economics

Department

  • Economics

Published in

The European Journal of Finance

Volume

24

Issue

17

Pages

1587 - 1608

Publisher

Informa UK Limited, trading as Taylor & Francis Group

Version

AM (Accepted Manuscript)

Rights holder

© Informa UK Limited, trading as Taylor & Francis Group

Publisher statement

This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 7 January 2018, available online: http://www.tandfonline.com/10.1080/1351847X.2017.1419273.

Acceptance date

04/12/2017

Publication date

2018-01-07

Copyright date

2018

ISSN

1351-847X

eISSN

1466-4364

Language

en

Depositor

Dr Meilan Yan. Deposit date: 30 July 2020

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