Advanced Search
MyIDEAS: Login to save this paper or follow this series

Leverage as a Predictor for Real Activity and Volatility

Contents:

Author Info

  • Robert Kollmann
  • Stefan Zeugner

Abstract

This paper explores the link between the leverage of the US financial sector, of households and non-financial businesses, and real activity. We document that leverage is negatively correlated with the future growth of real activity, and positively linked to the conditional volatility of future real activity and of equity returns. The joint information in sectoral leverage series is more relevant for predicting future real activity than the information contained in any individual leverage series. Using in-sample regressions and out-of sample forecasts, we show that the predictive power of leverage is roughly comparable to that of macro and financial variables commonly used by forecasters. Leverage information would not have allowed to predict thr "Great Recession" of 2008-2009 any better than macro/financial predictors.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/85421/1/2011-009-KOLLMANN_ZEUGNER-leverage.pdf
Download Restriction: no

Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2011-009.

as in new window
Length: 30 p.
Date of creation: Apr 2011
Date of revision:
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/85421

Contact details of provider:
Postal: Av. F.D., Roosevelt, 39, 1050 Bruxelles
Phone: (32 2) 650 30 75
Fax: (32 2) 650 44 75
Web page: http://difusion.ulb.ac.be
More information through EDIRC

Related research

Keywords: Leverage; Financial crisis; Forecasts; Real activity; Volatility;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 42(s1), pages 107-141, 09.
  2. Tobias Adrian & Emanuel Moench & Hyun Song Shin, 2010. "Financial intermediation, asset prices, and macroeconomic dynamics," Staff Reports 422, Federal Reserve Bank of New York.
  3. Robert Kollmann & Zeno Enders & Gernot J. Müller, 2010. "Global Banking and International Business Cycles," Working Papers ECARES, ULB -- Universite Libre de Bruxelles ECARES 2010-028, ULB -- Universite Libre de Bruxelles.
  4. Kilian, Lutz & Vigfusson, Robert J., 2009. "Pitfalls in Estimating Asymmetric Effects of Energy Price Shocks," CEPR Discussion Papers 7284, C.E.P.R. Discussion Papers.
  5. In't Veld, Jan & Raciborski, Rafal & Ratto, Marco & Roeger, Werner, 2011. "The recent boom-bust cycle: The relative contribution of capital flows, credit supply and asset bubbles," European Economic Review, Elsevier, vol. 55(3), pages 386-406, April.
  6. Huizinga, H.P. & Laeven, L., 2009. "Accounting Discretion of Banks During a Financial Crisis," Discussion Paper, Tilburg University, Center for Economic Research 2009-58, Tilburg University, Center for Economic Research.
  7. James Yetman & Michael B. Devereux, 2010. "leverage constraints and the international transmission of shocks," 2010 Meeting Papers 1341, Society for Economic Dynamics.
  8. Todd E. Clark & Kenneth D. West, 2005. "Approximately normal tests for equal predictive accuracy in nested models," Research Working Paper, Federal Reserve Bank of Kansas City RWP 05-05, Federal Reserve Bank of Kansas City.
  9. Van den Heuvel, Skander J., 2008. "The welfare cost of bank capital requirements," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(2), pages 298-320, March.
  10. Vasco Curdia & Michael Woodford, 2008. "Credit Frictions and Optimal Monetary Policy," Discussion Papers, Columbia University, Department of Economics 0809-02, Columbia University, Department of Economics.
  11. Ali Dib, 2010. "Banks, Credit Market Frictions, and Business Cycles," Working Papers 10-24, Bank of Canada.
  12. Gregory DE WALQUE & Olivier PIERRARD & Abdelaziz ROUABAH, 2009. "Financial (in)stability, supervision and liquidity injections : a dynamic general equilibrium approach," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  13. Césaire Meh & Kevin Moran, 2008. "The Role of Bank Capital in the Propagation of Shocks," Working Papers 08-36, Bank of Canada.
  14. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2008. "Explaining the Great Moderation: it is not the shocks," Working Paper Series, European Central Bank 0865, European Central Bank.
  15. Hubrich, Kirstin & West, Kenneth D., 2009. "Forecast evaluation of small nested model sets," Working Paper Series, European Central Bank 1030, European Central Bank.
  16. Ignazio Angeloni & Ester Faia, 2009. "A Tale of Two Policies: Prudential Regulation and Monetary Policy with Fragile Banks," Kiel Working Papers 1569, Kiel Institute for the World Economy.
  17. Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
  18. Goetz von Peter, 2004. "Asset prices and banking distress: a macroeconomic approach," BIS Working Papers 167, Bank for International Settlements.
  19. Tobias Adrian & Hyun Song Shin, 2009. "Financial intermediaries and monetary economics," Staff Reports 398, Federal Reserve Bank of New York.
  20. David Aikman & Matthias Paustian, 2006. "Bank capital, asset prices and monetary policy," Bank of England working papers 305, Bank of England.
  21. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 33(1), pages 3-56, February.
  22. Gabriele Galati & Richhild Moessner, 2010. "Macroprudential policy - a literature review," DNB Working Papers, Netherlands Central Bank, Research Department 267, Netherlands Central Bank, Research Department.
  23. Refet S. Gürkaynak & Brian Sack & Jonathan H. Wright, 2006. "The U.S. Treasury yield curve: 1961 to the present," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-28, Board of Governors of the Federal Reserve System (U.S.).
  24. Gertler, Mark & Kiyotaki, Nobuhiro, 2010. "Financial Intermediation and Credit Policy in Business Cycle Analysis," Handbook of Monetary Economics, Elsevier, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 11, pages 547-599 Elsevier.
  25. Stock, James H. & Watson, Mark W., 2006. "Forecasting with Many Predictors," Handbook of Economic Forecasting, Elsevier, Elsevier.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Robert Kollmann, 2012. "Global banks, financial shocks and international business cycles: evidence from an estimated model," Globalization and Monetary Policy Institute Working Paper 120, Federal Reserve Bank of Dallas.
  2. Robert Kollmann, 2012. "Global Banks, Financial Shocks and International Business Cycles: Evidence from Estimated Models," 2012 Meeting Papers, Society for Economic Dynamics 840, Society for Economic Dynamics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eca:wpaper:2013/85421. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benoit Pauwels).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.