Time-varying Contagion And Extreme Correlation Of Systemic Financial Risk In China From A Global Perspective

With the exacerbating process of financialization of economy,the contagion of global systemic financial risk is increasingly severe.In addition,affected by repeated geopolitical conflicts,the decoupling of the industrial chain and supply chain,and the uncertainty of the US monetary policy,China is facing an increasingly severe external environment.At the Central Economic Work Conference held in December 2022,General Secretary Xi Jinping pointed out that "It is necessary to effectively prevent and resolve major economic and financial risk,and it is important to prevent the formation of regional and systemic financial risk".In view of the time-varying,dynamic and extreme characteristics of systemic financial risk contagion,whether we can accurately measure systemic financial risk and accurately grasp the path of risk contagion is the key to winning the battle of systemic financial risk.Based on daily systemic risk indicator(SRISK)which consists of 760 financial institutions from 18 economies,we measure the time-varying contagion network of global systemic risk by time-varying parameter vector autoregression method and generalized variance decomposition method,at the same time,the regression model and the long short-term memory of deep learning algorithm are used to analyze the contagion intensity of systemic financial risk faced by China,analyze the impact of global systemic financial risk contagion network when major risky events happen,and use quantile Granger causality test to discover the impact of high quantile systemic risk of our country resulted from other economies.Our research shows that,the occurrence of risk events can be identified effectively by risk spillover effect which is measured by SRISK systemic risk data and time-varying contagion network;developed economies such as the United States and emerging economies such as Mexico all exert net risk output effect;international trade,capital flow and monetary policy of the United States are important factors which affect net risk input effect of our country,and the long short-term memory can well warn the net spillover effect of risk faced by China;during the full sample and four major risky events(Financial Crisis in 2008,European Debt Crisis,Sino-US Trade war,and COVID Pandemic),our country manifests net risk input effect which is the highest in the period of COVID pandemic;the United States and the United Kingdom have a significant impact on our country when systemic risk of our country are in the stage of high quantile.During COVID pandemic,the situation that high quantile systemic risk of our country suffered external shocks is the most severe.On the one hand,our research could provide decision-making references to government so that orderly resolve internal risk,for example,this paper points out that we should not only pay attention to the systemic financial risk of large banks,but also cannot ignore the possibility that small and medium-sized banks may cause regional systemic financial risk due to imperfect internal control.On the other hand,our research could provide suggestions to government so that effectively prevent imported risk,this paper points out regulators should not only focus on the shock of risk caused by developed economies such as the United States,the United Kingdom and France,but also cannot ignore the risk spillover effect that caused by emerging economies such as Mexico,India and Indonesia.