IDEAS home Printed from https://ideas.repec.org/a/kap/empiri/v42y2015i3p571-595.html
   My bibliography  Save this article

Euro area financial shocks and economic activity in The Netherlands

Author

Listed:
  • Jürgen Antony
  • D. Broer

Abstract

We analyze the effects of shocks on financial markets on economic development in the Euro area and the Netherlands in particular. We develop a VAR model that takes account of feedback loops between financial market conditions and the real economy. These feedback loops operate via the aggregated Euro area level for the real economy as well as financial markets and affect the Dutch economy. Our empirical analysis considers industry data for the Euro area and the Dutch economy. Shocks on financial markets are measured as shocks to corporate bond spreads and implied volatility. For shock identification, we employ a recently proposed decomposition of the forecast error variance combined with an ordering perturbation in our VAR. Bond spread shocks are found to have severe consequences for real economic development independently whether they are accompanied by shocks to volatility. Shocks to volatility seem to imply only severe effects for parts of the real economy if they are accompanied by bond spread shocks. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Jürgen Antony & D. Broer, 2015. "Euro area financial shocks and economic activity in The Netherlands," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 571-595, August.
  • Handle: RePEc:kap:empiri:v:42:y:2015:i:3:p:571-595
    DOI: 10.1007/s10663-014-9265-z
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10663-014-9265-z
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s10663-014-9265-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    2. Kimberly Beaton & Brigitte Desroches, 2011. "Financial Spillovers Across Countries: The Case of Canada and the United States," Discussion Papers 11-1, Bank of Canada.
    3. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    4. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," Review of Economic Studies, Oxford University Press, vol. 80(2), pages 711-744.
    5. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March.
    6. Chudik, Alexander & Bussière, Matthieu & Mehl, Arnaud, 2011. "Does the euro make a difference? Spatio-temporal transmission of global shocks to real effective exchange rates in an infinite VAR," Working Paper Series 1292, European Central Bank.
    7. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 391-415.
    8. Paasche, Bernhard, 2001. "Credit constraints and international financial crises," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 623-650, December.
    9. Ricardo J. Caballero & Arvind Krishnamurthy, 2003. "Excessive Dollar Debt: Financial Development and Underinsurance," Journal of Finance, American Finance Association, vol. 58(2), pages 867-893, April.
    10. Eickmeier, Sandra & Ng, Tim, 2015. "How do US credit supply shocks propagate internationally? A GVAR approach," European Economic Review, Elsevier, vol. 74(C), pages 128-145.
    11. Thomas Cooley & Vincenzo Quadrini, 2006. "Monetary policy and the financial decisions of firms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(1), pages 243-270, January.
    12. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    13. Thakor, Anjan V, 1996. "Capital Requirements, Monetary Policy, and Aggregate Bank Lending: Theory and Empirical Evidence," Journal of Finance, American Finance Association, vol. 51(1), pages 279-324, March.
    14. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    15. Martin Schneider & Aaron Tornell, 2004. "Balance Sheet Effects, Bailout Guarantees and Financial Crises," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 883-913.
    16. Chudik, Alexander & Fratzscher, Marcel, 2010. "Identifying the Global Transmission of the 2007-09 Financial Crisis in a GVAR Model," CEPR Discussion Papers 8093, C.E.P.R. Discussion Papers.
    17. Simon Gilchrist & Egon Zakrajsek & Cristina Fuentes Albero & Dario Caldara, 2013. "On the Identification of Financial and Uncertainty Shocks," 2013 Meeting Papers 965, Society for Economic Dynamics.
    18. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    19. Fabio Fornari & Livio Stracca, 2012. "What does a financial shock do? First international evidence [Financial intermediaries, financial stability and monetary policy]," Economic Policy, CEPR;CES;MSH, vol. 27(71), pages 407-445.
    20. Frank Schorfheide & Dongho Song, 2015. "Real-Time Forecasting With a Mixed-Frequency VAR," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(3), pages 366-380, July.
    21. Simon Gilchrist & Egon Zakrajsek, 2012. "Credit Spreads and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 102(4), pages 1692-1720, June.
    22. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    23. Peek, Joe & Rosengren, Eric, 1995. "The Capital Crunch: Neither a Borrower nor a Lender Be," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 625-638, August.
    24. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    25. Mary Amiti & David E. Weinstein, 2011. "Exports and Financial Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1841-1877.
    26. Gilchrist, Simon & Yankov, Vladimir & Zakrajsek, Egon, 2009. "Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 471-493, May.
    27. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
    28. Guido Lorenzoni, 2008. "Inefficient Credit Booms," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 809-833.
    29. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001. "International and domestic collateral constraints in a model of emerging market crises," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 513-548, December.
    30. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "Currency crises and monetary policy in an economy with credit constraints," European Economic Review, Elsevier, vol. 45(7), pages 1121-1150.
    31. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-353, July.
    32. Jon Faust & Simon Gilchrist & Jonathan H. Wright & Egon Zakrajšsek, 2013. "Credit Spreads as Predictors of Real-Time Economic Activity: A Bayesian Model-Averaging Approach," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1501-1519, December.
    33. Domenico Giannone & Michele Lenza & Giorgio E. Primiceri, 2015. "Prior Selection for Vector Autoregressions," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 436-451, May.
    34. Kiminori Matsuyama, 2007. "Credit Traps and Credit Cycles," American Economic Review, American Economic Association, vol. 97(1), pages 503-516, March.
    35. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
    36. Mody, Ashoka & Taylor, Mark P., 2004. "Financial predictors of real activity and the financial accelerator," Economics Letters, Elsevier, vol. 82(2), pages 167-172, February.
    37. J. B. Taylor & M. Woodford (ed.), 1999. "Handbook of Macroeconomics," Handbook of Macroeconomics, Elsevier, edition 1, volume 1, number 1.
    38. Chudik, Alexander & Fratzscher, Marcel, 2011. "Identifying the global transmission of the 2007-2009 financial crisis in a GVAR model," European Economic Review, Elsevier, vol. 55(3), pages 325-339, April.
    39. Altunbas, Yener & Fazylov, Otabek & Molyneux, Philip, 2002. "Evidence on the bank lending channel in Europe," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2093-2110, November.
    40. Ricardo J. Caballero & Arvind Krishnamurthy, 2003. "Excessive Dollar Debt: Financial Development and Underinsurance," Journal of Finance, American Finance Association, vol. 58(2), pages 867-894, April.
    41. Mr. Papa M N'Diaye & Ms. Hiroko Oura & Qianying Chen & Mr. Dale F Gray & Ms. Natalia T. Tamirisa, 2010. "International Transmission of Bank and Corporate Distress," IMF Working Papers 2010/124, International Monetary Fund.
    42. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, vol. 98(4), pages 1211-1244, September.
    43. Albert S. Kyle & Wei Xiong, 2001. "Contagion as a Wealth Effect," Journal of Finance, American Finance Association, vol. 56(4), pages 1401-1440, August.
    44. Ms. Silvia Sgherri & Mr. Alessandro Galesi, 2009. "Regional Financial Spillovers Across Europe: A Global VAR Analysis," IMF Working Papers 2009/023, International Monetary Fund.
    45. Boissay, Frédéric, 2006. "Credit chains and the propagation of financial distress," Working Paper Series 573, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter Broer & Jürgen Antony, 2013. "Financial Shocks and Economic Activity in the Netherlands," CPB Discussion Paper 260.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Peter Broer & Jürgen Antony, 2013. "Financial Shocks and Economic Activity in the Netherlands," CPB Discussion Paper 260, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, May.
    4. Kok, Christoffer & Gross, Marco & Żochowski, Dawid, 2016. "The impact of bank capital on economic activity - evidence from a mixed-cross-section GVAR model," Working Paper Series 1888, European Central Bank.
    5. Eickmeier, Sandra & Ng, Tim, 2015. "How do US credit supply shocks propagate internationally? A GVAR approach," European Economic Review, Elsevier, vol. 74(C), pages 128-145.
    6. Cesa-Bianchi, Ambrogio, 2013. "Housing cycles and macroeconomic fluctuations: A global perspective," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 215-238.
    7. Sebastian Ankargren & Mårten Bjellerup & Hovick Shahnazarian, 2017. "The importance of the financial system for the real economy," Empirical Economics, Springer, vol. 53(4), pages 1553-1586, December.
    8. Bassett, William F. & Chosak, Mary Beth & Driscoll, John C. & Zakrajšek, Egon, 2014. "Changes in bank lending standards and the macroeconomy," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 23-40.
    9. Donal Smith, 2016. "The International Impact of Financial Shocks: A Global VAR and Connectedness Measures Approach," Discussion Papers 16/07, Department of Economics, University of York.
    10. Gregor Bäurle & Rolf Scheufele, 2019. "Credit cycles and real activity: the Swiss case," Empirical Economics, Springer, vol. 56(6), pages 1939-1966, June.
    11. G. Peersman & W. Wagner, 2014. "Shocks to Bank Lending, Risk-Taking, Securitization, and their Role for U.S. Business Cycle Fluctuations," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/874, Ghent University, Faculty of Economics and Business Administration.
    12. Jean Boivin & Marc P. Giannoni & Dalibor Stevanović, 2020. "Dynamic Effects of Credit Shocks in a Data-Rich Environment," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(2), pages 272-284, April.
    13. Silvia Miranda-Agrippino & Giovanni Ricco, 2021. "The Transmission of Monetary Policy Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 74-107, July.
    14. Berger, Tino & Richter, Julia & Wong, Benjamin, 2022. "A unified approach for jointly estimating the business and financial cycle, and the role of financial factors," Journal of Economic Dynamics and Control, Elsevier, vol. 136(C).
    15. Serena Ng & Jonathan H. Wright, 2013. "Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling," Journal of Economic Literature, American Economic Association, vol. 51(4), pages 1120-1154, December.
    16. Okimoto, Tatsuyoshi & Takaoka, Sumiko, 2017. "The term structure of credit spreads and business cycle in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 45(C), pages 27-36.
    17. Silvia Miranda-Agrippino & Hélène Rey, 2020. "U.S. Monetary Policy and the Global Financial Cycle," Review of Economic Studies, Oxford University Press, vol. 87(6), pages 2754-2776.
    18. Berger, Tino & Richter, Julia & Wong, Benjamin, 2022. "A unified approach for jointly estimating the business and financial cycle, and the role of financial factors," Journal of Economic Dynamics and Control, Elsevier, vol. 136(C).
    19. Jesús Crespo Cuaresma & Martin Feldkircher & Florian Huber, 2014. "Forecasting with Bayesian Global Vector Autoregressive Models: A Comparison of Priors," Working Papers 189, Oesterreichische Nationalbank (Austrian Central Bank).
    20. Milcheva, Stanimira, 2013. "Cross-country effects of regulatory capital arbitrage," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5329-5345.

    More about this item

    Keywords

    Financial crisis; Financial shocks; Finance and real economic activity; G15; G01; F36;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G01 - Financial Economics - - General - - - Financial Crises
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:empiri:v:42:y:2015:i:3:p:571-595. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.