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Volume 63, Issue 1

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Financial Stress Spillover and Financial Linkages between the Euro Area and the Czech Republic

Adam, Tomáš; Benecká, Soňa

Year: 2013   Volume: 63   Issue: 1   Pages: 46-64

Abstract: This article analyzes the transmission of financial systemic stress from the euro area to the Czech Republic. We employ a recently developed composite indicator of systemic stress (CISS), which has a unique construction reflecting the correlations between markets and so captures the systemic stress of the financial system. The results from time-varying regression with stochastic volatility estimated using Bayesian inference indicate that the degree of transmission depends significantly on the level of stress, i.e., the intensity of the transmission mechanism itself is given by the magnitude of the shock. Second, the analysis reveals a more complex structure of financial stress linkages between markets on both the domestic and the international level. Finally, the results also support the current findings that the nature of stress is important for the transmission and that the sovereign debt crisis has so far had a limited impact on Czech financial markets.

JEL classification: G01, G10, G20

Keywords: systemic risk, financial crises, financial stress index, financial linkages

RePEc: http://ideas.repec.org/a/fau/fauart/v63y2013i1p46-64.html

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