Tail connectedness between category-specific policy uncertainty, sovereign debt risk, and stock volatility during a high inflation period

Greece has experienced high inflation, increased fiscal deficit and debt in recent years, and whether the Greek sovereign debt crisis will resurrect has triggered widespread discussion. This study explores the tail connectedness between category-specific economic policy uncertainty (EPUs), sovereign debt risk (SR), and stock volatility in Greece using a connectedness method based on the quantile VAR model. The findings show that (i) The total connectedness index (TCI) features a U-shaped structure that varies with the conditional quantiles of variables, demonstrating that the spillover effect under extreme conditions for variables is greater than under normal conditions; (ii) Under different market conditions, we observe an apparent heterogeneity in the magnitude of category-specific EPUs' effects on the SR; (iii) The Russia-Ukraine war and the COVID-19 pandemic both have a bigger effect on the TCI than other periods; (iv) SR has shifted from being a net spillover receiver in the median and left tail to a net spillover transmitter in the right tail.