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

  • Jean-michel Sahut

    ()

    (Geneva School of Business Administration)

  • Medhi Mili

    ()

    (University of Poitiers & University of Sfax)

  • Frédéric Teulon

    ()

    (IPAG Business School)

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.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P237.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 3 ()
Pages: 2464-2480

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Handle: RePEc:ebl:ecbull:eb-11-00511
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