Files
Document type
ArticleVersion
Published versionPublication date
Publication license
Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/207676
Dynamic connectedness between credit and liquidity risks in euro area sovereign debt markets
Journal Title
Director/Tutor
Journal ISSN
Volume Title
Related resource
Abstract
We examine the dynamic interconnections between sovereign credit and liquidity risks in ten euro area countries at the 5-year maturity with daily CDS data from IHS Markit and high-frequency data from MTS between 2008 and 2018 using the extended TVP-VAR connectedness approach of Antonakakis et al. (2020). We find that, for most of the period, net connectedness is from credit risk to liquidity risk, but this indicator is time-dependent, detecting some episodes where it goes from liquidity risk to credit risk. We set up an event study and discover that most of the latter episodes can be related to several unconventional monetary policy measures of the ECB. Then, we examine the drivers of the connectedness indicator using a Probit model. Our results suggest that a decline in global funding liquidity, monetary policy shocks and economic policy uncertainty increase the probability of risk transmission from liquidity to credit, while tensions in financial markets and the deterioration of fiscal sustainability are factors that reduce such a probability.
Subject
Subject (English)
Citation
Collections
Citation
GÓMEZ-PUIG, Marta, PIETERSE-BLOEM, Mary and SOSVILLA RIVERO, Simón. Dynamic connectedness between credit and liquidity risks in euro area sovereign debt markets. Journal Of Multinational Financial Management. 2023. Vol. 68, num. 100800, pags. 1-25. ISSN 1042-444X. [consulted: 15 of August of 2026]. Available at: https://hdl.handle.net/2445/207676