Turning points in core-periphery displacement of systemic risk in the Eurozone: Constrained weighted compositional clustering

Abstract

Investigating how systemic risk originates and spreads across the financial system poses an inherently compositional question, i.e. a question concerning the joint distribution of relative risk share across several interdependent contributors. To address this question, we propose a weighted compositional clustering approach aimed at tackling the trajectories and turning points of systemic risk in the Eurozone, from both a chronological and a geographical perspective. The cluster profiles emerging from our analysis indicate a progressive shift from Northern Europe towards the Euro-Mediterranean region in the coordinate center of systemic risk compositions. This shift matures as the outcome of complex interactions between core and peripheral EU countries that compositional methods have the merit of capturing and unifying in a self-contained multivariate framework

The research of G.C. was supported by the Spanish Ministry of Science and Innovation and ERDF—a way of making Europe [grant number PID2021-123833OB-I00], the Spanish Ministry of Health [grant number CIBERCB06/02/1002], the Department of Research and Universities of Generalitat de Catalunya [grant numbers 2021SGR01197 and 2023-CLIMA-00037], and AGAUR and the Department of Climate Action, Food, and Rural Agenda of Generalitat de Catalunya [grant number 2023-CLIMA-00037]