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Exploring the finance-real economy link in U.S.: empirical evidence from panel unit root and cointegration analysis

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  • Abdou-Aziz Niang

    ()

  • Abdoulaye Diagne

    ()

  • Marie-Claude Pichery

    ()

Abstract

The aim of this paper is to analyze the relationships between common shocks affecting the real economy and those underlying co-fluctuations in U.S. financial markets. In order to do this, we test for links between these common factors and also use the econometric theory of nonstationary panel data to estimate the relationships. The estimates prove the existence of significant relationships between financial and macroeconomic factors. It is also shown that there are forces pulling U.S. financial markets to move with the real economy, as seen through nearly instantaneous adjustment to a new equilibrium.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 40 (2011)
Issue (Month): 1 (February)
Pages: 253-268

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Handle: RePEc:spr:empeco:v:40:y:2011:i:1:p:253-268

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Related research

Keywords: PANIC analysis; Panel data; Common factors; Financial crises; U.S.; C5; C23; D1; G1; N12;

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  1. Jushan Bai & Serena Ng, 2001. "A Panic Attack on Unit Roots and Cointegration," Economics Working Paper Archive 469, The Johns Hopkins University,Department of Economics.
  2. Gilles Dufrénot & Valérie Mignon & Anne Péguin-Feissolle, 2007. "Testing the Finance-Growth Link: is There a Difference Between Developed and Developing Countries?," Working Papers 2007-24, CEPII research center.
  3. Christophe Croux & Mario Forni & Lucrezia Reichlin, 2001. "A Measure Of Comovement For Economic Variables: Theory And Empirics," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 232-241, May.
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  5. Benoît Bellone & Erwan Gautier & Sébastien Le Coent, 2006. "Les marchés financiers anticipent-ils les retournements conjoncturels ?," Économie et Prévision, Programme National Persée, vol. 172(1), pages 83-99.
  6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  7. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  8. Sargent, Thomas J & Wallace, Neil, 1982. "The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1212-36, December.
  9. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  10. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
  11. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  12. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
  13. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  14. Bai, Jushan & Ng, Serena, 2006. "Evaluating latent and observed factors in macroeconomics and finance," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 507-537.
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