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Identification of financial factors in economic fluctuations

Author

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  • Francesco Furlanetto

    (Norges Bank (Central Bank of Norway))

  • Francesco Ravazzolo

    (Norges Bank (Central Bank of Norway) and BI Norwegian Business School)

  • Samad Sarferaz

    (ETH Zürich)

Abstract

We estimate demand, supply, monetary, investment and financial shocks in a VAR identified with a minimum set of sign restrictions on US data. We find that financial shocks are major drivers of fluctuations in output, stock prices and investment but have a limited effect on inflation. In a second step we disentangle shocks originating in the housing sector, shocks originating in credit markets and uncertainty shocks. In the extended set-up financial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output.

Suggested Citation

  • Francesco Furlanetto & Francesco Ravazzolo & Samad Sarferaz, 2014. "Identification of financial factors in economic fluctuations," Working Paper 2014/09, Norges Bank.
    • Handle: RePEc:bno:worpap:2014_09
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2014/09/
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    More about this item

    Keywords

    VAR; Sign restrictions; Financial shocks; External finance premium; Housing; Uncertainty;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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