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A new macro-financial condition index for the euro area

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  • Morana, Claudio

Abstract

A new time-domain decomposition for weakly stationary or trend stationary processes is introduced. The method is based on trigonometric polynomial modeling, and it is explicitly devised to disentangle medium to long-term and short-term fluctuations in macroeconomic and financial series. A multivariate extension involving sequential univariate decompositions and Principal Components Analysis is also provided. Based on this multivariate approach, new composite indexes of macro-financial conditions for the euro area are introduced. The indicators suggest that most of the GDP contraction during the current pandemic has been of short-term, cyclical nature. Moreover, the financial cycle might have currently achieved a peak area. Hence, the risk of further, deeper disruptions is high, particularly as a new sovereign/corporate debt crisis were not eventually avoided.

Suggested Citation

  • Morana, Claudio, 2024. "A new macro-financial condition index for the euro area," Econometrics and Statistics, Elsevier, vol. 29(C), pages 64-87.
    • Handle: RePEc:eee:ecosta:v:29:y:2024:i:c:p:64-87
    DOI: 10.1016/j.ecosta.2021.09.005
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    Keywords

    trend-cycle decomposition; COVID-19 pandemic; EU Green Deal; subprime financial crisis; sovereign debt crisis; dot-com bubble; macroeconomic and financial conditions index; euro area;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G01 - Financial Economics - - General - - - Financial Crises

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