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Exploring the finance-real economy link in U.S.: Empirical evidence from Panel Unit Root and Cointegration Analysis

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  • Niang, Abdou-Aziz
  • Diagne, Abdoulaye
  • Pichery, Marie-Claude

Abstract

The aim of this paper is to analyze the relationships between common shocks affecting the real economy and those underlying co-fluctuations in U.S. financial markets. In order to do this, we test for links between these common factors and also use the econometric theory of nonstationary panel data to estimate the relationships. The estimates prove the existence of significant relationships between financial and macroeconomic factors. It is also shown that there are forces pulling U.S. financial markets to move with the real economy, as seen through nearly instantaneous adjustment to a new equilibrium.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23531.

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Date of creation: May 2010
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Handle: RePEc:pra:mprapa:23531

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Keywords: PANIC analysis; Panel Data; Common factors; Financial Crises; U.S;

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  1. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  2. Jushan Bai & Serena Ng, 2004. "Evaluating Latent and Observed Factors in Macroeconomics and Financ," Econometrics 0408007, EconWPA.
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  4. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  5. Gilles Dufrénot & Valérie Mignon & Anne Peguin-Feissolle, 2010. "Testing the finance-growth link: is there a difference between developed and developing countries?," Working Papers halshs-00536160, HAL.
  6. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  7. Bellone, B. & Gautier, E. & Le Coent, S., 2005. "Les marchés financiers anticipent-ils les retournements conjoncturels?," Working papers 128, Banque de France.
  8. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  9. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
  10. Christophe Croux & Mario Forni & Lucrezia Reichlin, 2001. "A Measure Of Comovement For Economic Variables: Theory And Empirics," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 232-241, May.
  11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  12. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, 07.
  13. Sargent, Thomas J & Wallace, Neil, 1982. "The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1212-36, December.
  14. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
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