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Real Sector and Banking System: Real and Feedback Effects. A Non-Linear VAR Approach

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Abstract

This paper assesses the relationship between the macroeconomic system and the banking sector by estimating two separate non-linear Vector Autoregressive models (VAR) for the US and Switzerland. The model specification includes the output gap, the interest rate, the in ation rate and a banking quality measure. Impulse response functions are estimated by using the local projections approach. The results highlight the existence of the real effect (going from the macroeconomic system to the banking sector), and of the feedback effect (going from the the banking sector to macroeconomic system). The findings are robust to the sample period, the size of the shocks as well as to the Cholesky decomposition employed.

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Bibliographic Info

Paper provided by IRENE Institute of Economic Research in its series IRENE Working Papers with number 13-01.

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Length: 44 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:irn:wpaper:13-01

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Keywords: Financial Stability; Non-Linear VAR; Local Projections Methods;

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References

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Cited by:
  1. Alawin, M. & Al-Muhaissen, T. & Merza, E., 2013. "The Relationship between Real and Banking Sectors in Jordan," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(2), pages 129-134.
  2. Abildgren, Kim, 2012. "Business cycles, monetary transmission and shocks to financial stability: empirical evidence from a new set of Danish quarterly national accounts 1948-2010," Working Paper Series 1458, European Central Bank.

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