Journal article
Bootstrap-based probabilistic analysis of spillover scenarios in economic and financial networks
M Greenwood-Nimmo, A Tarassow
Journal of Financial Markets | Published : 2022
Abstract
We apply techniques from the event probability forecasting literature to the analysis of spillover scenarios in economic and financial networks. A simple spillover scenario is expressed as an inequality constraint with respect to a single spillover measure. More complex spillover scenarios can be defined as combinations of simple scenarios. The scenario probabilities are evaluated using a non-parametric bootstrap. We use our technique to study credit risk transmission among a group of 18 countries over the 2006–2010 period. We show that abrupt changes in the probabilities of “crisis scenarios” accurately map on to key events during the Global Financial Crisis.
Grants
Awarded by Australian Research Council
Funding Acknowledgements
We are grateful for the helpful comments of Jingong Huang, Viet Nguyen, and Yongcheol Shin and for the discussion of participants at the Econometrics in the Castle: Machine Learning in Economics and Econometrics conference hosted by the Max-Planck Institute in Munich (May 2018), the Quantitative Economics Seminar at the University of Hamburg (June 2018), the First Behavioral Macroeconomics Workshop at the University of Bamberg (June 2018) and the Sixth Conference of the Society for Economic Measurement at Goethe University Frankfurt (August 2019). We thank Raphael Brun-Aguerre at JP Morgan for providing data on the realized variance of the U.S. 10-year Treasury note. Greenwood-Nimmo gratefully acknowledges financial support from the Australian Research Council, Australia under grant number DE150100708 and the hospitality of the University of Hamburg during a sequence of visits in 2017 and 2018. Tarassow gratefully acknowledges financial support from the Graduate School at the University of Hamburg, Germany and the hospitality of the University of Melbourne during a visit in 2017. The views expressed in this manuscript are those of the authors alone and do not necessarily reflect the views of Otto GmbH & Co KG. Any errors or omissions are the sole responsibility of the authors.