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Macro-financial linkages: the role of liquidity dependence

Author

Listed:
  • Alexey Ponomarenko

    () (Bank of Russia, Russian Federation)

  • Anna Rozhkova

    () (Bank of Russia, Russian Federation)

  • Sergei Seleznev

    () (Bank of Russia, Russian Federation)

Abstract

We estimate a panel Bayesian vector autoregression model for a cross-section of seven advanced European economies and produce out-of-sample forecasts of GDP conditionally on observed developments of interest rates and credit. We show that by using a smooth transition version of the model and allowing the parameters to vary across economies conditionally on their liquidity dependence, it is possible to improve the accuracy of the forecasts. We conclude that the degree of liquidity dependence is likely to be among the important predictors of heterogeneity in macro-financial linkages across countries.

Suggested Citation

  • Alexey Ponomarenko & Anna Rozhkova & Sergei Seleznev, 2017. "Macro-financial linkages: the role of liquidity dependence," Bank of Russia Working Paper Series wps24, Bank of Russia.
  • Handle: RePEc:bkr:wpaper:wps24
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    References listed on IDEAS

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    More about this item

    Keywords

    liquidity dependence; macro-financial linkages; Smooth Transition Bayesian VAR;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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