Global Market Conditions and Systemic Risks After Greece and Ireland’s Financial Crises

This column examines
recent events to assess the risk of systemic risk in advanced economies based
on  Markov-switching techniques used to examine equity, interbank spreads,
sovereign CDS and foreign exchange markets. The methodology employed examines
the volatility state of several market indicators and asset classes since the
beginning of the global financial crisis in a number of advanced countries. The
results suggest a recent diverging behavior among asset classes and across
countries, suggesting that volatility pressures have become more ‘localized’ in
recent months. In particular, while the overall market stress emanating from
interbank and foreign exchange markets has largely subsided, pockets of high
volatility states remain especially in sovereign CDS markets in some advanced
economies.

Finance & Markets EconoMonitor