Measuring bank contagion using binary spatial regression models

Raffaella Calabrese, Johan Elkink, Paolo Giudici

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

The recent European sovereign debt crisis clearly illustrates the importance of measuring the contagion effects of bank failures. Indeed, to better understand and monitor contagion risk, the European Central Bank is assuming the supervision of the largest banks in each of the member states. We propose a measure of contagion risk based on the spatial autocorrelation parameter of a binary spatial autoregressive model. Using different specifications of the interbank connectivity matrix, we estimate the contagion parameter for banks within the Eurozone, between 1996 and 2012. We provide evidence of high levels of systemic risk due to contagion during the European sovereign debt crisis.
Original languageEnglish
Pages (from-to)1503-1511
JournalJournal of the Operational Research Society
Volume68
Issue number12
Early online date15 Feb 2017
DOIs
Publication statusPublished - 2017

Keywords / Materials (for Non-textual outputs)

  • contagion risk
  • spatial autoregressive models
  • European banks
  • binary data

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