Mikhail Stolbov (Moscow State Institute of International Relations): Systemic risk in Europe: deciphering leading measures, common patterns and real effects

Mikhail Stolbov (Moscow State Institute of International Relations): Systemic risk in Europe: deciphering leading measures, common patterns and real effects

Co-author: Maria Schepeleva (Bank of Russia)

Abstract

The paper studies salient features of systemic risk in a sample of 22 European (EU and non-EU) countries during January 2010 – March 2016. Building on a novel dataset and conducting an empirical horse race, we determine the most influential systemic risk measures for the sample countries. SRISK and volatility indicator tend to lead other metrics, followed by leverage. In contrast to the conventional wisdom, composite systemic risk measures aggregated with the aid of principal and independent component analysis perform worse. The leading systemic risk measures exhibit a high degree of connectedness. The VIX index, TED spread, the Composite Index of Systemic Stress (CISS) and long-term interest rates underlie their dynamics. Two clusters within the sample are identified, with CISS and long-term interest rates being crucial to distinguish between them. There is only scarce evidence for causal linkages between systemic risk and industrial production in the sample countries, based on the concurring results of standard and nonparametric Granger causality tests.

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