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Macrofinancial determinants of volatility transmission in a network of European sovereign debt markets

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  • García, Javier Sánchez
  • Rambaud, Salvador Cruz

Abstract

In this paper, we propose a two-step approach for conducting statistical inference in financial networks of volatility, applied to a network of European sovereign debt markets. The static results highlight that, contrarily to the intuition, southern European bonds exhibiting most volatility during the European debt crisis were not necessarily net transmitters to the network. We also find that the best monetary and macroprudential policy stances to achieve low volatility transmission are to target low inflation and low financial stress. The dynamics of the model show that the central bank should adjust which variable targets depending on the time period.

Suggested Citation

  • García, Javier Sánchez & Rambaud, Salvador Cruz, 2023. "Macrofinancial determinants of volatility transmission in a network of European sovereign debt markets," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000090
    DOI: 10.1016/j.frl.2023.103635
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    Cited by:

    1. Sánchez García, Javier & Cruz Rambaud, Salvador, 2023. "Inflation and systemic risk: A network econometric model," Finance Research Letters, Elsevier, vol. 56(C).
    2. Kaihao Liang & Shuliang Li & Wenfeng Zhang & Chaolong Zhang, 2024. "Research on Stock Market Risk Contagion of Major Debt Crises Based on Complex Network Models—The Case of Evergrande in China," Mathematics, MDPI, vol. 12(11), pages 1-13, May.

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    More about this item

    Keywords

    Inference; Volatility transmission; Financial networks; European debt crisis;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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