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EMU risk-synchronisation and financial fragility through the prism of dynamic connectedness

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  • Ioannis Chatziantoniou
  • David Gabauer
This study employs dynamic connectedness as a measure of financial risk synchronization considering government bond yields in 11 EMU member states. In particular, large values of the relevant index can be an indication of comparable levels of risk further implying that the common currency area consists of a financially sensible set of countries. By contrast, small connectedness values can be an indication of fragmentation whereupon certain countries are considered to be safer than others. The latter would be detrimental for the EMU as it fuels financial fragility, which practically stipulates that crises occur as a result of self-fulfilling market fears. The results are based on a daily dataset which spans between 1st September 2003 and 31st August 2018. Findings show that fragmentation was present at the height of the European sovereign debt crisis and that the interconnectedness has not yet reverted to its pre-2009 levels. In addition, core countries appear to transmit shocks to periphery countries although, occasionally, there are noteworthy disparities. Further investigating these disparities on a pairwise connectedness level – which helps to identify sensible pairs of countries in terms of financial risk – shows that core countries dominate this exercise, with the exception of the bilateral relation between Italy and Spain. The fact that most periphery countries of our sample are not included in these pairs raises concerns and calls for a more substantial integration.
Original languageEnglish
Number of pages14
JournalQuarterly Review of Economics and Finance
Early online date15 Dec 2020
Publication statusPublished - 1 Feb 2021


  • CHATZIANTONIOU_2020_cright_EMU Risk-Synchronisation and Financial Fragility

    Accepted author manuscript (Post-print), 1.48 MB, PDF document

    Due to publisher’s copyright restrictions, this document is not freely available to download from this website until: 15/12/22

    Licence: CC BY-NC-ND

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