Financial shocks and the macroeconomy: heterogeneity and non-linearities
AbstractThis paper analyses the transmission of financial shocks to the macroeconomy. The role of macro-financial linkages is investigated from an empirical perspective for the euro area as a whole, for individual euro area member countries and for other EU and OECD countries. The following key economic questions are addressed: 1) Which financial shocks have the largest impact on output over the full sample on average? 2) Are financial developments leading real activity? 3) Is there heterogeneity or a common pattern in macro-financial linkages across the euro area and do these linkages vary over time? 4) Do cross-country spillovers matter? 5) Is the transmission of financial shocks different during episodes of high stress than it is in normal times, i.e. is there evidence of non-linearities? In summary, it is found that real asset prices are significant leading indicators of real activity whereas the latter leads loan developments. Furthermore, evidence is presented that macro-financial linkages are heterogeneous across countries – despite persistent commonalities – and time-varying. Moreover, they differ between euro area and other countries. Results also indicate that cross-country spillovers matter. Finally, important non-linearities in the transmission of financial shocks are documented, as the evidence suggests that the transmission differs in episodes of high stress compared with normal times. JEL Classification: C43, D11
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Bibliographic InfoPaper provided by European Central Bank in its series Occasional Paper Series with number 143.
Date of creation: Feb 2013
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- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-EEC-2013-03-23 (European Economics)
- NEP-IFN-2013-03-23 (International Finance)
- NEP-MAC-2013-03-23 (Macroeconomics)
- NEP-OPM-2013-03-23 (Open Economy Macroeconomic)
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- Schleer, Frauke & Semmler, Willi, 2013. "Financial sector-output dynamics in the euro area: Non-linearities reconsidered," ZEW Discussion Papers 13-068, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Kirstin Hubrich, 2012. "Comment on "Global House Price Fluctuations: Synchronization and Determinants"," NBER Chapters, in: NBER International Seminar on Macroeconomics 2012, pages 167-173 National Bureau of Economic Research, Inc.
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