What does a financial shock do? First international evidence
AbstractIn this paper we attempt to evaluate the quantitative impact of financial shocks on key indicators of real activity and financial conditions. We focus on financial shocks as they have received wide attention in the recent literature and in the policy debate after the global financial crisis. We estimate a panel VAR for 21 advanced economies based on quarterly data between 1985 and 2011, where financial shocks are identified through sign restrictions. Overall, we find robust evidence that financial shocks can be separately identified from other shock types and that they exert a significant influence on key macroeconomic variables such as GDP and (particularly) investment, but it is unclear whether these shocks are demand or supply shocks from the standpoint of their macroeconomic impact. The financial development and the financial structure of a given country are found not to matter much for the intensity of the propagation of financial shocks. Moreover, we generally find that these shocks play a role not only in crisis times, but also in normal conditions. Finally, we discuss the implications of our findings for monetary policy. JEL Classification: E44, E52, E58, G20
Download InfoIf 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.
Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1522.
Date of creation: Mar 2013
Date of revision:
Contact details of provider:
Postal: Postfach 16 03 19, Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/home/html/index.en.html
More information through EDIRC
Postal: Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany
Other versions of this item:
- Fabio Fornari & Livio Stracca, 2012. "What does a financial shock do? First international evidence," Economic Policy, CEPR & CES & MSH, vol. 27(71), pages 407-445, 07.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
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.:
- John Moore & Nobuhiro Kiyotaki, .
1995-5, Edinburgh School of Economics, University of Edinburgh.
- Charles Nolan & Christoph Thoenissen, 2008.
"Financial shocks and the US business cycle,"
CDMA Working Paper Series
200810, Centre for Dynamic Macroeconomic Analysis.
- Thomas Helbling & M. Ayhan Kose & Christopher Otrok & Raju Huidrom, 2010.
"Do Credit Shocks Matter? A Global Perspective,"
IMF Working Papers
10/261, International Monetary Fund.
- Guido Lorenzoni, 2006.
"A Theory of Demand Shocks,"
NBER Working Papers
12477, National Bureau of Economic Research, Inc.
- Ian Christensen & Ali Dib, 2008. "The Financial Accelerator in an Estimated New Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 155-178, January.
- Hristov, Nikolay & Hülsewig, Oliver & Wollmershäuser, Timo, 2012.
"Loan supply shocks during the financial crisis: Evidence for the Euro area,"
Journal of International Money and Finance,
Elsevier, vol. 31(3), pages 569-592.
- Nikolay Hristov & Oliver Hülsewig & Timo Wollmershäuser, 2011. "Loan Supply Shocks during the Financial Crisis: Evidence for the Euro Area," CESifo Working Paper Series 3395, CESifo Group Munich.
- Canova, Fabio & Paustian, Matthias, 2011.
"Business cycle measurement with some theory,"
Journal of Monetary Economics,
Elsevier, vol. 58(4), pages 345-361.
- Canova, Fabio & Paustian, Matthias, 2011. "Business cycle measurement with some theory," CEPR Discussion Papers 8364, C.E.P.R. Discussion Papers.
- Fabio Canova & Matthias Paustian, 2007. "Business cycle measurement with some theory," Economics Working Papers 1203, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2011.
- Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010.
"Credit and banking in a DSGE model of the euro area,"
Temi di discussione (Economic working papers)
740, Bank of Italy, Economic Research and International Relations Area.
- 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, vol. 42(s1), pages 107-141, 09.
- Cordoba, Juan & Ripoll, Marla, 2002.
"Credit Cycles Redux,"
2002-07, Rice University, Department of Economics.
- Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
- Vasco Cúrdia & Michael Woodford, 2009.
"Credit Spreads and Monetary Policy,"
NBER Working Papers
15289, National Bureau of Economic Research, Inc.
- Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
- Meh, Césaire A. & Moran, Kevin, 2010.
"The role of bank capital in the propagation of shocks,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 34(3), pages 555-576, March.
- Césaire Meh & Kevin Moran, 2008. "The Role of Bank Capital in the Propagation of Shocks," Working Papers 08-36, Bank of Canada.
- Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
- Ettore Dorrucci & Alexis Meyer-Cirkel & Daniel Santabárbara, 2009. "Domestic Financial Development in Emerging Economies: Evidence and Implications," Occasional Paper Series 102, European Central Bank.
- Narayana R. Kocherlakota, 2000. "Creating business cycles through credit constraints," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-10.
- Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2009. "Chained Credit Contracts and Financial Accelerators," IMES Discussion Paper Series 09-E-30, Institute for Monetary and Economic Studies, Bank of Japan.
- Paustian Matthias, 2007. "Assessing Sign Restrictions," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-33, August.
- Rannenberg, Ansgar, 2012.
"Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics,"
Working Paper Series
1487, European Central Bank.
- Rannenberg, Ansgar, 2012. "Asymmetric Information in Credit Markets, Bank Leverage Cycles and Macroeconomic Dynamics," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62035, Verein für Socialpolitik / German Economic Association.
- Ansgar Rannenberg, 2012. "Asymmetric information in credit markets, bank leverage cycles and macroeconomic dynamics," Working Paper Research 224, National Bank of Belgium.
- Stracca, Livio, 2013. "Financial imbalances and household welfare: empirical evidence from the EU," Working Paper Series 1543, European Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications).
If references are entirely missing, you can add them using this form.