International Financial Stress Connectedness: Asymmetry, Time Variation, and Measurement Sensitivity in the United States, Germany, and Mexico
Translated title
International Financial Stress Connectedness: Asymmetri, tidsvariation og målefølsomhed i USA, Tyskland og Mexico
Author
Kalstrup, Tobias
Term
4. semester
Publication year
2026
Submitted on
2026-10-15
Abstract
This thesis investigates how financial stress is interconnected between the United States, Germany, and Mexico, and whether these links are both asymmetric and change over time. Financial stress is understood as periods when financial markets are under strain, for example through large price swings or tighter credit conditions. For each country, a Financial Stress Index (FSI) is constructed that combines information from several parts of the financial system, allowing stress to be measured broadly rather than through a single indicator. These indices are then analysed in a statistical model (a VAR model) that makes it possible to examine how much of the fluctuations in one country’s financial stress can be explained by shocks coming from the other countries. The model is used to measure different types of “connectedness”: the overall strength of the connections in the system, the direction of influences (who mainly transmits and who mainly receives stress), and the intensity of the relationships between each country pair. A rolling-window approach – repeatedly estimating the model over overlapping time periods – is applied to see how these connections evolve over time. The results show that financial stress in the United States, Germany, and Mexico is clearly interconnected, but the strength and direction of these links vary substantially over time. In the baseline specification, the average Total Connectedness Index is 36.43%, indicating that a considerable share of the variation in a country’s financial stress is associated with influences originating abroad. The United States appears as the main net transmitter of financial stress, Mexico as the main net receiver, while Germany takes a more intermediate and balanced position. The strongest and most persistent asymmetry in the bilateral relationships is found between the United States and Mexico: US financial stress affects Mexico more than the reverse. In contrast, the relationship between the United States and Germany is more reciprocal and more time‑varying. Robustness checks using alternative ways of constructing the FSI show that the overall level of connectedness and the broad transmitter–receiver pattern remain relatively stable, although the strength and direction of some bilateral relationships are more sensitive to how financial stress is measured. In particular, the US–Mexico asymmetry remains robust across specifications, whereas the US–Germany relationship is less stable. Overall, the findings suggest that international financial stress among the three countries is both asymmetric and time‑varying. At the same time, the thesis emphasizes that these links should be interpreted as statistical interdependence rather than as clearly identified causal chains for how financial shocks are directly transmitted across borders.
Denne afhandling undersøger, hvordan finansiel stress hænger sammen mellem USA, Tyskland og Mexico, og om forbindelserne er både skæve (asymmetriske) og ændrer sig over tid. Finansiel stress forstås som perioder, hvor finansmarkederne er under pres, for eksempel gennem store kursfald eller stramme kreditvilkår. For hvert land konstrueres et Finansielt Stressindeks (Financial Stress Index, FSI), der samler information fra flere dele af finansmarkedet, så stress kan måles bredt og ikke kun ud fra én enkelt indikator. Disse indeks analyseres derefter i en statistisk model (VAR-model), der gør det muligt at undersøge, hvor meget udsving i ét lands finansielle stress kan forklares af chok, der kommer fra de andre lande. Modellen bruges til at måle forskellige former for “connectedness”: hvor stærkt det samlede system er forbundet, hvilken retning påvirkningerne går i (hvem der mest sender og modtager stress), og hvor kraftigt forholdet er mellem hvert enkelt land-par. Ved at bruge et rullende vindue – det vil sige gentagne beregninger over glidende tidsperioder – analyseres, hvordan disse forbindelser ændrer sig gennem tiden. Resultaterne viser, at finansiel stress i USA, Tyskland og Mexico er tydeligt forbundet, men at styrken og retningen af forbindelserne varierer betydeligt over tid. I grundanalysen er den gennemsnitlige Total Connectedness Index 36,43 %, hvilket betyder, at en betydelig del af udsvingene i finansiel stress i et land kan tilskrives påvirkninger fra de andre lande. USA fremstår som den vigtigste nettopåvirker (net transmitter) af finansiel stress, Mexico som den største nettomodtager (net receiver), mens Tyskland indtager en mere mellemliggende og balanceret rolle. Den stærkeste og mest vedvarende asymmetri i de bilaterale relationer findes mellem USA og Mexico: USA påvirker i højere grad stressniveauet i Mexico end omvendt. Forholdet mellem USA og Tyskland er derimod mere gensidigt og varierer mere over tid. Robusthedsanalyser med alternative måder at opbygge FSI på viser, at det overordnede niveau af connectedness og den generelle transmitter–receiver-struktur er forholdsvis stabil, men at styrken og retningen af nogle af de bilaterale forhold er mere følsomme over for, hvordan finansiel stress måles. Særligt asymmetrien mellem USA og Mexico består på tværs af forskellige specifikationer, mens forholdet mellem USA og Tyskland ændrer sig mere. Samlet set peger resultaterne på, at international finansiel stress mellem de tre lande både er asymmetrisk og tidsvarierende. Samtidig understreges det, at disse forbindelser bør forstås som statistiske gensidige afhængigheder snarere end som klart identificerede årsagskæder for, hvordan finansielle chok direkte overføres mellem landene.
[This abstract has been rewritten with the help of AI based on the project's original abstract]
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