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A financially stressed euro area

Author

Listed:
  • Kappler, Marcus
  • Schleer, Frauke

Abstract

The authors analyse 149 newly compiled monthly time series on financial market stress conditions in the euro area. With the aid of a factor model they find different sources of financial stress that are important for selecting and preparing the appropriate policy response. The existence of a 'Periphery Banking Crisis' factor, a 'Stress' factor and a 'Yield Curve' factor seems to explain the bulk of volatility in recent euro area financial sector data. Moreover, by a real-time forecasting exercise, the authors show that including additional factors-that reflect financial sector conditions-improves forecasts of economic activity at short horizons.

Suggested Citation

  • Kappler, Marcus & Schleer, Frauke, 2017. "A financially stressed euro area," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 11, pages 1-37.
  • Handle: RePEc:zbw:ifweej:20176
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2017-6
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    financial stress; dynamic factor models; financial crisis; euro area; forecasting;

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • G01 - Financial Economics - - General - - - Financial Crises

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