Financial stress spillovers in advanced economies

In this study, we examine financial stress co-movements and spillovers among the G7 economies by employing a Financial Stress Index as a proxy variable and accounting for financial instability. To examine the interdependence of financial stress, we parse the dynamic conditional correlations of financial stress among these countries for the 1981-2009 period. In addition, we present spillover indices and plots of financial stress that indicate financial stress innovations and spillover dynamics, respectively. Our empirical results suggest a positive association of financial stress co-movements and spillovers with both financial crises and uncertainty. In general, our findings provide a clear view of the transmission of financial stress during important stressful episodes, suggesting the existence of an increased interplay among the financial markets.