Spatial analysis of sovereign risk from the perspective of EPU spillovers

Theoretically, international EPU spillovers would amplify negative impacts of particular shocks on countries’ financial markets and macro level, which may drive sovereign risk and its spillovers. Hence, we explore EPU spillovers among G20, and investigate spatial spillovers of sovereign risk from the perspective of EPU spillovers and explore its influential factors during various periods. First, we construct the EPU spillover network based on EPU connectedness obtained by the TVP-VAR model. Network analysis results show crisis has exacerbated EPU spillovers. And developed countries are net exporters of EPU spilloversSecond, based on the database among G20 over the period 2008Q3-2019Q4, we innovatively construct the EPU spillover matrix as spatial weight matrix and apply dynamic spatial SAR model. There are significant spatial spillovers containing contemporaneous and time-lagged interactions in sovereign risk during the European debt crisis period and only contemporaneous interactions during the financial crisis period. Last, we analyze contemporaneous and diffusion effects based on unit changes and country specific variation in the macro-economic variable. We find the much higher magnitude and variation in contemporaneous effects based on country specific variation.