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Linkages between the Financial and the Real Sector of the Economy: A Literature Survey

Author

Listed:
  • Peter Broer

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Jürgen Antony

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

This document reviews the literature on the relationship between financial markets and the real economy. In the light of the recent financial crises, we focus on channels that are likely to be important in times of financial stress. Some channels are governed by balance sheet effects like the Financial Accelerator and the Bank Lending Channel. We discuss the significance of these channels in the light of empirical evidence and try to extract their quantitative importance from the literature. Both channels seem to have played an important role in the aftermath of the crisis. Further, we discuss the role of trade finance in the collapse in world trade following the financial crisis 2007-2009. While finance is important for trade, the literature is not conclusive on whether finance was also the reason for the observed collapse. Naturally, risk is important during a financial crisis. Taking a look at risk channels, we find risk also to play an important role in feedback loops between finance and the real economy. The theoretical and empirical evidence found in the literature appears to be useful in explaining the severe and long-lasting effects of the recent financial crisis.

Suggested Citation

  • Peter Broer & Jürgen Antony, 2010. "Linkages between the Financial and the Real Sector of the Economy: A Literature Survey," CPB Document 216, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:docmnt:216
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    File URL: http://www.cpb.nl/sites/default/files/publicaties/download/linkages-between-financial-and-real-sector-economy.pdf
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    References listed on IDEAS

    as
    1. Claudio Raddatz, 2010. "Credit Chains and Sectoral Comovement: Does the Use of Trade Credit Amplify Sectoral Shocks?," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 985-1003, November.
    2. Wachter, Jessica A., 2006. "A consumption-based model of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 79(2), pages 365-399, February.
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    Cited by:

    1. Duchi, Fabio & Elbourne, Adam, 2016. "Credit supply shocks in the Netherlands," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 51-71.
    2. Klaus Abberger & Biswa Nath Bhattacharyay & Chang Woon Nam & Gernot Nerb & Siegfried Schönherr, 2014. "How Can the Crisis Vulnerability of Emerging Economies Be Reduced?," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 65, October.
    3. repec:spr:empeco:v:53:y:2017:i:4:d:10.1007_s00181-016-1175-4 is not listed on IDEAS
    4. Vlastimir Vukovic & Zoran Rajkovic, 2012. "Financial Sector Progress in Serbia Toward European Integration," Book Chapters, Institute of Economic Sciences.
    5. Mikhail Stolbov, 2014. "International Credit Cycles: A Regional Perspective," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 21-47.
    6. repec:voj:journl:v:63:y:2016:i:1:p:87-112 is not listed on IDEAS
    7. Grout, Paul A. & Zalewska, Anna, 2016. "Stock market risk in the financial crisis," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 326-345.
    8. Levanon, Gad & Manini, Jean-Claude & Ozyildirim, Ataman & Schaitkin, Brian & Tanchua, Jennelyn, 2015. "Using financial indicators to predict turning points in the business cycle: The case of the leading economic index for the United States," International Journal of Forecasting, Elsevier, vol. 31(2), pages 426-445.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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