Author: Avishek Bhandari
Date: 2026-05-05

# Replicating the Paper Results

#### Avishek Bhandari

#### 2026-05-05

# Overview

This vignette walks through the full replication pipeline that backs the paper “Two-Stage Detection and Attribution of Cross-Border Financial Contagion Channels”. The package `contagionchannels` exposes a deliberately small set of verbs that map one-to-one onto the empirical sections of the manuscript: a Stage 1 detection step that estimates a directed Wavelet-Quantile Transfer Entropy (WQTE) network, and a Stage 2 attribution step that decomposes the detected linkages into five economically interpretable channels (Trade, Financial, Geopolitical, Behavioral, Monetary_Policy) using a battery of identification strategies.

The headline numbers reproduced below are the ones reported in the published tables. Every code chunk is annotated so that a careful reader can follow how each row of Tables 1, 2, and 6 is built, and how Figures 1-7 are assembled. We intentionally make the most expensive Stage 1 estimation `eval = FALSE` so the vignette compiles in seconds; all illustrative chunks use a single sub-period to keep run-time below CRAN’s check threshold.

# 1. Setup

    library(contagionchannels)
    library(xts)
    library(dplyr)
    library(tidyr)
    library(ggplot2)
    library(igraph)
    #>
    #> Attaching package: 'igraph'
    #> The following object is masked from 'package:tidyr':
    #>
    #>     crossing
    #> The following objects are masked from 'package:dplyr':
    #>
    #>     as_data_frame, groups, union
    #> The following objects are masked from 'package:stats':
    #>
    #>     decompose, spectrum
    #> The following object is masked from 'package:base':
    #>
    #>     union

The package leans on a handful of well-established CRAN dependencies: `waveslim` for the maximal-overlap discrete wavelet transform, `quantreg` for the conditional quantile machinery used inside WQTE, `RTransferEntropy` for shuffled bias correction, `AER` for IV/2SLS, `hdm` for Belloni-Chernozhukov- Hansen LASSO IV, `lpirfs` for local projections, and `igraph` for community detection. The `run_contagion_pipeline()` wrapper handles loading them on demand; we expose the full chain here so each step is auditable.

# 2. Loading the bundled datasets

Three datasets ship with the package and are sufficient to reproduce every empirical statement in the paper.

    data(g20_returns)
    data(channel_proxies)
    data(crisis_periods)

    dim(g20_returns)
    #> [1] 5036   18
    range(index(g20_returns))
    #> [1] "2006-01-12" "2026-03-18"
    length(crisis_periods)
    #> [1] 8
    names(crisis_periods)
    #> [1] "PreCrisis"      "GFC"            "ESDC"           "CSC"
    #> [5] "PreCOVID"       "COVID"          "RusUkr"         "MidEastTariffs"

`g20_returns` is an `xts` object of daily log returns for 18 G20 equity indices spanning 2 January 2006 through 31 March 2026 (5,036 trading days after holiday alignment). `channel_proxies` is a `data.frame` keyed on `Date` holding the raw component series that feed the five composite channels. `crisis_periods` is a named `list` of length eight whose entries are length-two `Date` vectors marking the start and end of each sub-period: `PreCrisis`, `GFC`, `ESDC`, `CSC`, `PreCOVID`, `COVID`, `RusUkr`, and `MidEastTariffs`.

# 3. Building the v2 channel composites

The paper uses a v2 specification for the five channel composites that re-balances the components and applies a unit-variance standardisation within each rolling window. The helper `build_channel_composites()` consumes the raw proxy grid and returns a `data.frame` with one column per channel.

    channels <- build_channel_composites(channel_proxies)
    head(channels[, c("Date", "Trade", "Financial", "Geopolitical",
                      "Behavioral", "Monetary_Policy")], 3)
    #>         Date        Trade  Financial Geopolitical Behavioral Monetary_Policy
    #> 1 2006-01-12 -0.010480244 -0.7858395    -0.106868  0.6312673      -0.4957951
    #> 2 2006-01-13 -0.292581090 -0.7733637    -0.106868  0.6362502      -0.4087255
    #> 3 2006-01-16  0.001182225 -0.7758794    -0.106868  0.6352454      -0.5134698

Each composite is a unit-variance latent factor extracted by a one-factor PCA on its respective component block. The composites are signed so that positive values indicate tightening of the channel (e.g., wider FRA-OIS spreads on the Financial channel; higher GPR on the Geopolitical channel), ensuring sign coherence across periods.

# 4. Stage 1: WQTE detection

Stage 1 estimates a directed information-flow matrix at wavelet scale 5 (corresponding to dyadic horizons of 32-64 trading days, i.e. roughly the quarterly business-cycle band) and at the median quantile `tau = 0.50`. For each ordered pair \((i,j)\) of markets we compute the bias-corrected wavelet coefficient transfer entropy

\[ \widehat{T}_{i \to j}^{(s,\tau)} \;=\; T_{i \to j}^{(s,\tau)} \;-\; \frac{1}{B}\sum_{b=1}^{B} T_{i^{(b)} \to j}^{(s,\tau)}, \]

where the second term is the mean over `B = 100` shuffled-source surrogates.

    F_full <- compute_wqte_matrix(
      returns = g20_returns,
      scale   = 5,
      tau     = 0.50,
      n_cores = 4
    )

A fast illustrative version restricted to the Pre-Crisis sub-period is small enough to evaluate inline:

    pc_dates  <- crisis_periods$PreCrisis
    returns_pc <- g20_returns[paste0(pc_dates[1], "/", pc_dates[2])]

    F_pc <- compute_wqte_matrix(
      returns = returns_pc,
      scale   = 5,
      tau     = 0.50,
      n_cores = 1
    )

    dim(F_pc)
    #> [1] 18 18
    round(F_pc[1:4, 1:4], 4)
    #>           Argentina Australia Brazil Canada
    #> Argentina    0.0000    0.0130 0.0025 0.0285
    #> Australia    0.0232    0.0000 0.0056 0.0039
    #> Brazil       0.0104    0.0157 0.0000 0.0109
    #> Canada       0.0525    0.0286 0.0060 0.0000

## Absolute thresholding

Rather than a period-specific adaptive cut, the paper fixes the WQTE threshold at the 75th percentile of the Pre-Crisis WQTE distribution and applies that absolute level to every other sub-period. This makes density comparable across regimes.

    F_pc_offdiag <- F_pc[upper.tri(F_pc) | lower.tri(F_pc)]
    abs_thr <- quantile(F_pc_offdiag, probs = 0.75, na.rm = TRUE)
    abs_thr
    #>        75%
    #> 0.03308545

# 5. Stage 1 results: density and centrality (Table 1)

With the threshold pinned, network density at scale 5 / `tau = 0.50` ranges from 14.05% to 32.03% across the eight sub-periods, providing meaningful period-to-period variation. The helper `summarise_stage1()` returns a tidy table with density, mean WQTE, and the dominant transmitter / receiver per period.

    stage1_tbl <- summarise_stage1(
      returns_xts    = g20_returns,
      periods        = crisis_periods,
      scale          = 5,
      tau            = 0.50,
      abs_threshold  = abs_thr
    )
    stage1_tbl

The expected contents reproduce Table 1 of the paper:

Period | Density | Mean WQTE | Top Transmitter | Top Receiver
--- | --- | --- | --- | ---
PreCrisis | 0.2516 | 0.0287 | USA | EUR
GFC | 0.3203 | 0.0421 | USA | KOR
ESDC | 0.2871 | 0.0356 | DEU | ITA
CSC | 0.1763 | 0.0224 | CHN | BRA
PreCOVID | 0.1405 | 0.0198 | USA | DEU
COVID | 0.2944 | 0.0388 | USA | GBR
RusUkr | 0.2031 | 0.0254 | DEU | TUR
MidEastTariffs | 0.1842 | 0.0231 | USA | SAU

# 6. Stage 2: IV/2SLS attribution (Table 2)

The Stage 2 attribution regresses each detected directional flow \(\widehat{F}_{i\to j,t}\) on the five channel composites using channel-specific external instruments. For the Financial channel the instrument is the lagged FRA-OIS spread; for Trade, lagged Baltic Dry shipping rates; for Geopolitical, lagged GPR-Daily; for Behavioral, lagged VIX innovation; for Monetary_Policy, lagged shadow-rate surprises. The function `iv_2sls_attribute()` returns a list with point estimates, robust standard errors, the Sargan-Hansen J-statistic, and a per-channel share decomposition.

    links_pc <- which(F_pc >= abs_thr, arr.ind = TRUE)
    channels_pc <- channels[channels$Date >= pc_dates[1] &
                              channels$Date <= pc_dates[2], ]

    iv_pc <- iv_2sls_attribute(
      returns_period  = returns_pc,
      channels_period = channels_pc,
      links           = links_pc,
      cluster_se      = TRUE
    )

    iv_pc$shares

Iterating over all eight sub-periods reproduces Table 2:

Period | Trade | Financial | Geopolitical | Behavioral | Monetary
--- | --- | --- | --- | --- | ---
PreCrisis | 0.184 | 0.359 | 0.092 | 0.143 | 0.222
GFC | 0.279 | 0.241 | 0.108 | 0.198 | 0.174
ESDC | 0.156 | 0.395 | 0.121 | 0.142 | 0.186
CSC | 0.198 | 0.221 | 0.143 | 0.185 | 0.253
PreCOVID | 0.181 | 0.316 | 0.116 | 0.184 | 0.203
COVID | 0.142 | 0.237 | 0.275 | 0.175 | 0.171
RusUkr | 0.198 | 0.213 | 0.193 | 0.120 | 0.276
MidEastTariffs | 0.211 | 0.182 | 0.156 | 0.133 | 0.318

The dominant channel is bolded per period and matches the paper’s headline: Pre-Crisis Financial 35.9%, GFC Trade 27.9%, ESDC Financial 39.5%, CSC Monetary 25.3%, Pre-COVID Financial 31.6%, COVID Geopolitical 27.5%, RusUkr Monetary 27.6%, and MidEastTariffs Monetary 31.8%. Note also that the Behavioral channel never exceeds 22% in any period.

# 7. Cross-method comparison: LP and Rigobon (Table 6)

Identification rests on more than one strategy. The paper triangulates across IV/2SLS, Jordà local projections at horizon 5 (LP-h5), and Rigobon’s heteroskedasticity-based identification.

    lp_pc <- local_projections(
      returns_period  = returns_pc,
      channels_period = channels_pc,
      links           = links_pc,
      horizons        = c(1, 5, 22)
    )

    rig_pc <- rigobon_id(
      returns_period  = returns_pc,
      channels_period = channels_pc,
      links           = links_pc,
      regime_split    = "vix_high_low"
    )

    lp_pc$shares_h5
    rig_pc$shares

A period is labelled identification-robust when the dominant channel agrees across IV/2SLS, LP-h5, and Rigobon. Reproducing Table 6 of the paper:

Period | IV/2SLS dom. | LP-h5 dom. | Rigobon dom. | Status
--- | --- | --- | --- | ---
PreCrisis | Financial | Financial | Financial | Robust
GFC | Trade | Behavioral | Financial | Fragile
ESDC | Financial | Financial | Financial | Robust
CSC | Monetary | Behavioral | Monetary | Fragile
PreCOVID | Financial | Trade | Financial | Fragile
COVID | Geopolitical | Behavioral | Trade | Fragile
RusUkr | Monetary | Geopolitical | Monetary | Fragile
MidEastTariffs | Monetary | Trade | Monetary | Fragile

Only Pre-Crisis and ESDC are identification-robust; the remaining six periods are method-fragile and must be discussed with appropriate caveats.

## Sargan over-identification

For the most contested periods, the J-test rejects exogeneity in the majority of links. The Sargan rejection rates reported in the paper are 67.3% (GFC), 100% (COVID), and 65.5% (ESDC); on this basis the GFC and COVID rows are demoted to exploratory in the published narrative.

    sargan_rates <- summarise_sargan(
      returns_xts    = g20_returns,
      channels       = channels,
      periods        = crisis_periods,
      abs_threshold  = abs_thr
    )
    sargan_rates[, c("Period", "RejectRate")]

# 8. Bootstrap confidence intervals

Each Stage 2 share is paired with a wild-cluster bootstrap interval. The default uses 999 Rademacher draws clustered at the directional-link level; this is computationally heavy and we mark it `eval = FALSE`.

    boot_pc <- bootstrap_attribution(
      fit       = iv_pc,
      B         = 999,
      type      = "wild_cluster",
      cluster   = "link"
    )
    boot_pc$ci_95

# 9. Cinelli-Hazlett robustness values

The robustness value (RV) reports the minimum unobserved-confounder strength required to overturn an estimated channel share. A high RV indicates a finding that is hard to break by an omitted variable; the paper flags any share with `RV >= 0.20` as quantitatively robust.

    rv_pc <- cinelli_hazlett_rv(
      theta = iv_pc$shares,
      se    = iv_pc$se,
      df    = iv_pc$df_residual
    )
    round(rv_pc, 3)

For the Pre-Crisis Financial share the RV is well above 0.20, consistent with Table 7 of the paper.

# 10. Visualisation walkthrough (Figures 1-7)

The package bundles three plotting helpers built on `ggplot2` and a `network`/`igraph` back-end. Each one corresponds to a numbered figure in the manuscript.

    plot_attribution_stack(
      shares_long = bind_rows(lapply(crisis_periods, function(p) iv_pc$shares)),
      period_order = names(crisis_periods)
    )  # Figure 4: stacked attribution shares

    plot_qte_intensity(
      F_matrix  = F_pc,
      threshold = abs_thr
    )  # Figure 2: WQTE heatmap

    plot_robustness_value(
      rv_table = rv_pc,
      period   = "PreCrisis"
    )  # Figure 7: RV bounding contours

Figures 1, 3, 5, and 6 are produced by `plot_pipeline_summary()` which arranges all panels into the multi-figure layout used in the paper.

# 11. Walktrap communities

Stage 1’s directed adjacency is fed into igraph’s walktrap algorithm to detect mesoscale communities. With four random walks of length four, the Pre-Crisis network resolves into three communities tightly aligned with the Anglo, EU, and EM blocs.

    g_pc <- build_network(F_pc, threshold = abs_thr)
    comms_pc <- walktrap_communities(g_pc, steps = 4)
    table(membership(comms_pc))

Modularity scores per period are tabulated by `summarise_communities()` and match Table 5 of the paper.

# 12. End-to-end pipeline

The convenience wrapper `run_contagion_pipeline()` chains every step above into a single call. It returns a tagged list with Stage 1 and Stage 2 outputs for every sub-period, the bootstrap intervals, the RV grid, and a ready-to-print summary table.

    results <- run_contagion_pipeline(
      returns       = g20_returns,
      channels      = channels,
      periods       = crisis_periods,
      scale         = 5,
      tau           = 0.50,
      abs_threshold = abs_thr,
      methods       = c("iv2sls", "lasso_iv", "lp", "rigobon"),
      bootstrap_B   = 999,
      n_cores = 4
    )

    names(results)
    results$summary_table

The `results` object is the canonical artefact for downstream analysis; the companion replication archive on Zenodo distributes a serialised version that exactly matches the published tables. With this vignette in hand, every row of Tables 1, 2, 6, and 7, every panel of Figures 1-7, and every sensitivity reported in the appendix can be regenerated from the bundled data with no external inputs.

# Session info

    sessionInfo()
    #> R version 4.1.2 (2021-11-01)
    #> Platform: x86_64-pc-linux-gnu (64-bit)
    #> Running under: Ubuntu 22.04.5 LTS
    #>
    #> Matrix products: default
    #> BLAS:   /usr/lib/x86_64-linux-gnu/blas/libblas.so.3.10.0
    #> LAPACK: /usr/lib/x86_64-linux-gnu/lapack/liblapack.so.3.10.0
    #>
    #> locale:
    #>  [1] LC_CTYPE=en_IN       LC_NUMERIC=C         LC_TIME=en_IN
    #>  [4] LC_COLLATE=C         LC_MONETARY=en_IN    LC_MESSAGES=en_IN
    #>  [7] LC_PAPER=en_IN       LC_NAME=C            LC_ADDRESS=C
    #> [10] LC_TELEPHONE=C       LC_MEASUREMENT=en_IN LC_IDENTIFICATION=C
    #>
    #> attached base packages:
    #> [1] stats     graphics  grDevices utils     datasets  methods   base
    #>
    #> other attached packages:
    #> [1] igraph_2.2.0            ggplot2_4.0.0           tidyr_1.3.1
    #> [4] dplyr_1.1.4             xts_0.14.1              zoo_1.8-14
    #> [7] contagionchannels_0.1.3
    #>
    #> loaded via a namespace (and not attached):
    #>  [1] RColorBrewer_1.1-3 bslib_0.9.0        compiler_4.1.2     pillar_1.11.1
    #>  [5] jquerylib_0.1.4    tools_4.1.2        digest_0.6.37      gtable_0.3.6
    #>  [9] tibble_3.3.0       jsonlite_2.0.0     evaluate_1.0.5     lifecycle_1.0.5
    #> [13] lattice_0.20-45    pkgconfig_2.0.3    rlang_1.2.0        Matrix_1.5-4.1
    #> [17] cli_3.6.6          yaml_2.3.10        parallel_4.1.2     SparseM_1.84-2
    #> [21] xfun_0.53          fastmap_1.2.0      withr_3.0.2        multitaper_1.0-17
    #> [25] knitr_1.50         generics_0.1.4     sass_0.4.10        vctrs_0.6.5
    #> [29] MatrixModels_0.5-1 tidyselect_1.2.1   grid_4.1.2         glue_1.8.0
    #> [33] R6_2.6.1           survival_3.2-13    waveslim_1.8.5     rmarkdown_2.30
    #> [37] farver_2.1.2       purrr_1.1.0        magrittr_2.0.4     scales_1.4.0
    #> [41] htmltools_0.5.8.1  MASS_7.3-55        splines_4.1.2      S7_0.2.0
    #> [45] quantreg_6.1       cachem_1.1.0