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What is the linkage between real growth in the Euro area and global financial market conditions?

Author

Listed:
  • Jean-michel Sahut

    (Geneva School of Business Administration)

  • Medhi Mili

    (University of Poitiers & University of Sfax)

  • Frédéric Teulon

    (IPAG Business School)

Abstract

This paper deals with transitiontransmission mechanisms through which world financial market conditions indicators affect real economic growth in the Euro area. The informational content of financial variables for predicting real economic growth is assessed, allowing for asymmetric responses to shocks. A nonlinear framework is developed based on a smooth transition model for which the effects of shocks can vary across business cycles when financial indicators modify both the endogenous and state variables. Global financial variables are shown to significantly affect real growth in the Euro area, particularly during periods of recession. Changes in stock market index and yield slope have asymmetric effects on real growth. In recessionary periods, the slope of the US yield curve does not have a significant impact on growth in the Euro area.

Suggested Citation

  • Jean-michel Sahut & Medhi Mili & Frédéric Teulon, 2012. "What is the linkage between real growth in the Euro area and global financial market conditions?," Economics Bulletin, AccessEcon, vol. 32(3), pages 2464-2480.
    • Handle: RePEc:ebl:ecbull:eb-11-00511
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    More about this item

    Keywords

    smooth transition models; nonlinear models; economic growth; business cycle; stock market; yield spread.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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