The varying spillover of U.S. systemic risk: A functional-coefficient cointegration approach

We examine the spillover effects of systemic risk from U.S. to U.K. based on a functional-coefficient cointegration approach. We find that the international spillover of systemic risk is varying as the global financial cycle evolves. When the global financial market is booming or busting, the systemic risk spillover effect could be elevated. The forecasting experiment suggests that the systemic risk spillover through the global financial factor can help improve the forecasting accuracy of future systemic risk in U.K.