Abstract
This paper analyses the impact of energy market conditions, specifically electricity and natural gas prices, on systemic risk in the Euro Area. We adopt the CoVaR methodology introduced by Tobias and Brunnermeier (2016) to analyze shifts in the system’s value at risk, incorporating considerations for electricity and natural gas prices. Our findings reveal that energy-related variables influence systemic risk to a similar extent as other state variables, such as interbank spreads and market volatility. Notably, we find that electricity prices have a more pronounced impact on banks’ risk compared to natural gas prices. Moreover, we observe that the ΔCoVaR serves as a reliable measure of systemic stress conditions when compared to the CISS index established by the ECB. Specifically, the ΔCoVaR developed in this paper, based on data up to the year 2021, anticipates the stress in the system that the CISS index captures in 2022.
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