ABSTRACT: 

This paper proposes to identify and date contagion by accounting for possibly distinct structural breaks among the covariance structure of financial assets. We propose an efficient two-steps procedure that applies the Lagrange Multiplier test, in particular the SupLM statistic, among the DCC-GARCH model parameters. Monte Carlo experiments show that our procedure possess good power and accurately detects the location of the true breaking points. We explore contagion between the governmental bond and stock market of advanced and emerging economies. Evidence of common shifts in the covariance structure coincides with the European Sovereign Crisis, the Taper Tantrum originated in United States in mid-2013 and the Covid-19 pandemic.

Keywords: Contagion, Emerging Markets, Unknown Multiple Structural Breaks, Lagrange Multiplier Test, DCC-GARCH.

ABSTRACT: 

This paper investigates macroprudential policy effects on bank systemic risk and the role of inflation targeting in such effects. Using bank-level data for 45 countries comprising various monetary and exchange rate regimes, our regime-dependent dynamic panel regression results point to complementarities between monetary and macroprudential policies. We find that the tightening of most macroprudential tools—including DSTI and LTV limits, loan loss provisions, and capital and liquidity requirements, and limits on FX exposures and positions—reduces bank systemic risk further under inflation targeting. Our findings lend credence to the view that monetary policy inflation targeting strenghtens macroprudential policy roles in mitigating financial stability risks.

Keywords: Macroprudential Policies, Banks, Systemic Risk, Monetary Policy, Inflation Targeting

ABSTRACT:  

This study investigates the relationship between financial inclusion (FI) and financial stability (FS) across different types of inclusion, regulations, and bank risk dimensions. Unlike prior research focused on idiosyncratic bank risk, we analyze how FI impacts systemic risk, measured by the SRISK indicator from Brownlees & Engle (2017), as well as idiosyncratic risks like Z-Scores and CDS spreads. The findings reveal that the effects of FI on FS vary based on the source of inclusion and risk type. Loan-based inclusion by banks increases idiosyncratic risk while reducing systemic risk. In contrast, deposit-based inclusion by banks lowers both systemic and idiosyncratic risks. At the bank-level, stronger bank-level Basel scores help mitigate the impact of FI on idiosyncratic risk. However, macroprudential policies and expanded deposit insurance coverage could potentially increase systemic banking risks when FI is promoted by non-bank financial institutions.

Keywords: Bank Systemic Risk, Financial Inclusion, Bank Regulation, Non-banking Financial Institutions