Monetary Policy, Industry Heterogeneity and Systemic Risk—Based on a High Dimensional Network Analysis

Abstract

We utilized a high dimensional financial network to investigate the systemic risk contagion between different industries in China and to explore the impacts of monetary policy and industry heterogeneity factors. The empirical results suggest that the total level of systemic risk increased quite significantly during the 2008 global crisis and the 2015–2016 Stock Market Disaster. The energy, material, industrial, and financial sectors are the top systemic risk contributors. Industry heterogeneity variables such as the leverage ratio, book-to-market ratio, return on assets (ROA) and size have significant impacts on the systemic risk, but their effects on the systemic risk contribution are more pronounced than those on the systemic risk sensitivity. Moreover, monetary policy can effectively suppress the systemic risk diffusion derived from the leverage ratio. These results are essential for investors and regulators of risk management.