IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Macro-financial linkages: Evidence from country-specific VARs

  • Paolo Guarda

    ()

  • Philippe Jeanfils

    ()

This paper estimates the contribution of financial shocks to fluctuations in the real economy by augmenting the standard macroeconomic vector autoregression (VAR) with five financial variables (real stock prices, real house prices, term spread, loans-to-GDP ratio and loans-todeposits ratio). This VAR is estimated separately for 19 industrialised countries over 1980Q1-2010Q4 using three alternative measures of economic activity: GDP, private consumption or total investment. Financial shocks are identified by imposing a recursive structure (Choleski decomposition). Several results stand out. First, the effect of financial shocks on the real economy is fairly heterogeneous across countries, confirming previous findings in the literature. Second, the five financial shocks provide a surprisingly large contribution to explaining real fluctuations (33% of GDP variance at the 3-year horizon on average across countries) exceeding the contribution from monetary policy shocks. Third, the most important source of real fluctuations appears to be shocks to asset prices (real stock prices account for 12% of GDP variance and real house prices for 9%). Shocks to the term spread or to leverage (credit-to-GDP ratio or loans-to-deposits ratio) each contribute an additional 3-4% of GDP variance. Fourth, the combined contribution of the five financial shocks is usually higher for fluctuations in investment than in private consumption. Fifth, historical decompositions indicate that financial shocks provide much more important contributions to output fluctuations during episodes associated with financial imbalances (both booms and busts). This suggests possible time-variation or non-linearities in macrofinancial linkages that are left for future research.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/71/BCLWP071.pdf
Download Restriction: no

Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 71.

as
in new window

Length: 38 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:bcl:bclwop:bclwp071
Contact details of provider: Web page: http://www.bcl.lu/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," International Finance Discussion Papers 462, Board of Governors of the Federal Reserve System (U.S.).
  2. Robert S. Chirinko & Leo de Haan & Elmer Sterken, 2004. "Asset Price Shocks, Real Expenditures, and Financial Structure: A Multi-Country Analysis," DNB Working Papers 014, Netherlands Central Bank, Research Department.
  3. Simon Gilchrist & Vladimir Yankov & Egon Zakrajsek, 2009. "Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets," NBER Working Papers 14863, National Bureau of Economic Research, Inc.
  4. Alberto Musso & Stefano Neri & Livio Stracca, 2011. "Housing, consumption and monetary policy: how different are the U.S. and the euro area?," Temi di discussione (Economic working papers) 807, Bank of Italy, Economic Research and International Relations Area.
  5. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2010. "Business Cycles in the Euro Area," NBER Chapters, in: Europe and the Euro, pages 141-167 National Bureau of Economic Research, Inc.
  6. Andrew Ang & Monika Piazzesi & Min Wei, 2004. "What Does the Yield Curve Tell us about GDP Growth?," NBER Working Papers 10672, National Bureau of Economic Research, Inc.
  7. Fabio Canova & Evi Pappa, 2007. "Price Differentials in Monetary Unions: The Role of Fiscal Shocks," Economic Journal, Royal Economic Society, vol. 117(520), pages 713-737, 04.
  8. Alessandro Calza & Tommaso Monacelli & Livio Stracca, 2013. "Housing Finance And Monetary Policy," Journal of the European Economic Association, European Economic Association, vol. 11, pages 101-122, 01.
  9. Charles Goodhart & Boris Hofmann, 2008. "House prices, money, credit, and the�macroeconomy," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 180-205, spring.
  10. Christiane Baumeister & Eveline Durinck & Gert Peersman, 2008. "Liquidity, inflation and asset prices in a time-varying framework for the euro area," Working Paper Research 142, National Bank of Belgium.
  11. Massimo Giuliodori, 2005. "The Role Of House Prices In The Monetary Transmission Mechanism Across European Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(4), pages 519-543, 09.
  12. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
  13. Stefano Neri, 2004. "Monetary policy and stock prices: theory and evidence," Temi di discussione (Economic working papers) 513, Bank of Italy, Economic Research and International Relations Area.
  14. Gerlach, Stefan & Assenmacher-Wesche, Katrin, 2008. "Financial structure and the impact of monetary policy on asset prices," CFS Working Paper Series 2008/30, Center for Financial Studies (CFS).
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bcl:bclwop:bclwp071. 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: ()

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.