November 13, 2018
12:45 - 2:00 pm
D 109, Place Montesquieu, 3
will give a presentation on
Sovereign Risk Spillovers through Endogenous Cross-Border Financial Linkages
This paper analyzes the role of cross-border financial linkages in the transmission of sovereign risk across advanced economies. To that end, it combines two existing empirical frameworks, namely the spatial econometric and capital flow models. This combination efficiently accounts for the time-varying and endogenous nature of cross-border financial linkages. Using a sample of 15 OECD countries from 2006 to 2015, the results, robust to endogeneity issue, show that contemporaneously, cross-border lending activities have a significant effect on domestic sovereign risk. As an implication for empirical research, failing to address the endogeneity issue related to the financial linkages leads to underestimating its impact.