Based on OECD evidence, equity/housing-price busts and credit crunches are followed by substantial increases in public consumption. These increases in unproductive public spending lead to increases in distortionary marginal taxes, a policy in sharp contrast with presumably optimal Keynesian...

This paper examines the impact of loan loss provisions (LLPs) on return predictability during 1994-2017. We find that on average, LLPs are negatively associated with one year ahead stock returns. This effect is particularly significant during the global financial crisis but much weaker during...

In the present paper we examine whether financial markets could have helped predict exchange rates in three selected Central and Eastern European (CEE) economies of the EU, namely the Czech Republic, Hungary and Poland, during the current financial crisis. To this end, we derive risk-neutral...

We construct a network-based turbulence score that proves useful for analyzing the relationship between financial interconnectedness, and global market risk, and for identifying systemically important markets, with the highest contribution to financial turbulence. We apply our measure to study...

The association between economic and financial stabilities and influence of macroeconomic policies on the financial sector creates scope of active policy role in financial stability. As a contribution to the existing body of knowledge, this study has analysed the implications of macroeconomic...

We study market perception of sovereign credit risk in the euro area during the financial crisis. In our analysis we use a parsimonious CDS pricing model to estimate the probability of default (PD) and the loss given default (LGD) as perceived by financial markets. We find that separate...

We study market perception of sovereign credit risk in the Euro area during the financial crisis. In our analysis we use a parsimonious CDS pricing model to estimate market implied measures of the probability of default (PD) and of the loss given default (LGD). We find that separate...

The purpose of this paper is the construction of an early warning indicator for systemic risk using entropy measures. The analysis is based on the cross-sectional distribution of marginal systemic risk measures such as Marginal Expected Shortfall, Delta CoVaR and network connectedness. These...

In this paper we realize an early warning system for hedge funds based on specific red flags that help to detect symptoms of impending extreme negative returns and contagion effect. To do this we rely on regression trees analysis identifying a series of splitting rules which act as risk signals....

This paper studies whether the choice of the crisis start dates affects the magnitude of contagion estimates. Contagion models generally use exogenously determined crisis start date by relying on event-based markers. We conduct structural break tests and endogenously determine the start dates of...