Analysis of Regional Financial Risk Spillover Effect Based on Regime Switching Model
The rapid construction of a dual circulation development pattern in which the domestic economic cycle plays a lead-ing role while the international economic cycle remains its extension and supplement promoting each other has made financial transactions in various regions increasingly frequent.However,under the background of the frequent occurrence of regional financial risk events in various places,the increasingly close financial transaction network increases the possibility of regional financial risk transmission across regions,which has caused a certain negative impact on the development of avoiding system-ic financial risks.Therefore,this study constructs a regional financial risk index to measure the risk of the remaining 31 provinces in China except Hong Kong,Macao,and Taiwan.This study also measures the degree of risk spillover between each region through the method of risk spillover network.Finally,based on the regime switching model,this study further discusses and analyzes the spillover relationship of regional financial risks in various provinces and cities under different macro backgrounds.This study finds that economically underdeveloped provinces such as the northeast and western regions are more likely to face severe regional financial risk pressures than developed provinces.At the same time,the results of the risk spillover net-work also show that provinces with greater regional financial risks,such as the northeast and western regions,often exhibit net risk importers.In addition,when the macroeconomic situation is low or with high economic policy uncertainty,the overall ef-fect of regional financial risk spillovers will increase significantly.The risk spillover effect among different provinces and cit-ies will also change,with the central region having a strong risk spillover effect regardless of the macroeconomic state,while the western region plays a more important role in accepting risk spillover.The northeast region has a wide range of perform-ances in different situations.In addition,risk spillovers to the remaining provinces are more pronounced in the eastern region when the economic situation is good.However,it plays a role in absorbing risks from other provinces when the economic situ-ation is poor.This study argues that the reasons for the differences are mainly due to the imbalance of financial development in various regions and the characteristics of their industrial structures.This study provides a specific scientific basis for regulators to adjust relevant policies and strengthen macro-prudential management in different macro environments.It also helps regulators to better understand the contagion mechanism of region-al financial risks in China.
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