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Financial shocks and the macroeconomy: heterogeneity and non-linearities

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  • Hubrich, Kirstin
  • D’Agostino, Antonello
  • Cervená, Marianna
  • Ciccarelli, Matteo
  • Guarda, Paolo
  • Haavio, Markus
  • Jeanfils, Philippe
  • Mendicino, Caterina
  • Ortega, Eva
  • Valderrama, Maria Teresa
  • Valentinyiné Endrész, Marianna

Abstract

This 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 Info

Paper provided by European Central Bank in its series Occasional Paper Series with number 143.

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Date of creation: Feb 2013
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Handle: RePEc:ecb:ecbops:20130143

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Keywords: Financial shocks; heterogeneity; lead-lag relationships; macro-financial linkages;

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Cited by:
  1. Mehmet Balcilar & Kirsten Thompson & Rangan Gupta & Renee van Eyden, 2014. "Testing the Asymmetric Effects of Financial Conditions in South Africa: A Nonlinear Vector Autoregression Approach," Working Papers, University of Pretoria, Department of Economics 201414, University of Pretoria, Department of Economics.
  2. Schleer, Frauke & Semmler, Willi, 2013. "Financial sector-output dynamics in the euro area: Non-linearities reconsidered," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 13-068, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Kirstin Hubrich, 2012. "Comment on "Global House Price Fluctuations: Synchronization and Determinants"," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER International Seminar on Macroeconomics 2012, pages 167-173 National Bureau of Economic Research, Inc.

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