We develop a theoretical and empirical framework to model the international connections between financial institutions and sovereign debt markets. By allowing for both good and poor returns on the investments of financial institutions in real economy firms and the potential for haircuts in...

The spillover effects of interconnectedness between financial assets are decomposed into both sources of shocks and whether they amplify or dampen volatility conditions in the target market. We use historical decompositions to rearrange information from a VAR which includes sources, direction...