Static and dynamic liquidity spillovers in the Eurozone: The role of financial contagion and the Covid-19 pandemic

Stefano Grillini, Aydin Ozkan, Abhijit Sharma

Research output: Contribution to journalArticlepeer-review

Abstract

This paper investigates static and dynamic liquidity spillovers for a pool of ten Eurozone countries for the period 2000-2021. We estimate a generalised vector autoregressive (VAR) model based on Diebold and Yilmaz (2009, 2012). We find evidence for static and dynamic transmission of shocks through the liquidity channel. We propose a static measure of liquidity spillovers which captures total and pairwise average spillovers across Eurozone countries. Our measure shows strong evidence of interconnection within the Eurozone through the liquidity channel. We investigate the dynamic intensity and direction of liquidity spillovers, finding significant evidence of contagion during crisis periods. Our results indicate that most of the shocks during periods of financial uncertainty arise from leading economies within the Euro area.
Original languageEnglish
Article number102273
Number of pages17
JournalInternational Review of Financial Analysis
Volume83
Early online date13 Jul 2022
DOIs
Publication statusE-pub ahead of print - 13 Jul 2022

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