A0239
Title: Good contagion: What do networks say about policy transmission
Authors: Kumushoy Abduraimova - Durham University (United Kingdom) [presenting]
Abstract: Contagion is frequently perceived as something bad, as a small initial shock amplifying into a systemic crisis, as financial distress propagating from one bank to another, or as a spread of infectious disease. The focus is on good contagion that can facilitate policy propagation. We develop multi-layer network measures of contagion that account for copula and heavy-tailedness structures of the nodes' financial variables. The measures are applied to analyse the European Central Banks interest rate policy transmission. Understanding how network contagiousness, and network structure, more generally, influences the policy transmission is useful for this policy's future successful implementations. The findings indicate that policy transmits most efficiently in severe bearish contagion and least efficiently in intense bullish contagion environments. This result is attributed to the level of attention that markets pay to central bank announcements during turmoil and calm periods. The introduced measures can be used as indicators of systemic importance and as an early warning system of contagion risk.
