  We propose a new framework for measuring connectedness among financial
variables that arises due to heterogeneous frequency responses to shocks. To
estimate connectedness in short-, medium-, and long-term financial cycles, we
introduce a framework based on the spectral representation of variance
decompositions. In an empirical application, we document the rich
time-frequency dynamics of volatility connectedness in US financial
institutions. Economically, periods in which connectedness is created at high
frequencies are periods when stock markets seem to process information rapidly
and calmly, and a shock to one asset in the system will have an impact mainly
in the short term. When the connectedness is created at lower frequencies, it
suggests that shocks are persistent and are being transmitted for longer
periods.
