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Financial shocks and the macroeconomy: heterogeneity and non-linearities

Author

Listed:
  • Hubrich, Kirstin
  • D’Agostino, Antonello
  • Cervená, Marianna
  • Ciccarelli, Matteo
  • Guarda, Paolo
  • Haavio, Markus
  • Jeanfils, Philippe
  • Mendicino, Caterina
  • Ortega, Eva
  • Valderrama, Maria Teresa
  • Valentinyiné Endrész, Marianna

Abstract

This paper analyses the transmission of financial shocks to the macroeconomy. The role of macro-financial linkages is investigated from an empirical perspective for the euro area as a whole, for individual euro area member countries and for other EU and OECD countries. The following key economic questions are addressed: 1) Which financial shocks have the largest impact on output over the full sample on average? 2) Are financial developments leading real activity? 3) Is there heterogeneity or a common pattern in macro-financial linkages across the euro area and do these linkages vary over time? 4) Do cross-country spillovers matter? 5) Is the transmission of financial shocks different during episodes of high stress than it is in normal times, i.e. is there evidence of non-linearities? In summary, it is found that real asset prices are significant leading indicators of real activity whereas the latter leads loan developments. Furthermore, evidence is presented that macro-financial linkages are heterogeneous across countries – despite persistent commonalities – and time-varying. Moreover, they differ between euro area and other countries. Results also indicate that cross-country spillovers matter. Finally, important non-linearities in the transmission of financial shocks are documented, as the evidence suggests that the transmission differs in episodes of high stress compared with normal times. JEL Classification: C43, D11

Suggested Citation

  • Hubrich, Kirstin & D’Agostino, Antonello & Cervená, Marianna & Ciccarelli, Matteo & Guarda, Paolo & Haavio, Markus & Jeanfils, Philippe & Mendicino, Caterina & Ortega, Eva & Valderrama, Maria Teresa &, 2013. "Financial shocks and the macroeconomy: heterogeneity and non-linearities," Occasional Paper Series 143, European Central Bank.
  • Handle: RePEc:ecb:ecbops:20130143
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    Cited by:

    1. repec:ipg:wpaper:2014-468 is not listed on IDEAS
    2. Balcilar, Mehmet & Thompson, Kirsten & Gupta, Rangan & van Eyden, Reneé, 2016. "Testing the asymmetric effects of financial conditions in South Africa: A nonlinear vector autoregression approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 30-43.
    3. repec:spr:empeco:v:53:y:2017:i:4:d:10.1007_s00181-016-1175-4 is not listed on IDEAS
    4. Schleer, Frauke & Semmler, Willi, 2015. "Financial sector and output dynamics in the euro area: Non-linearities reconsidered," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 235-263.
    5. Clancy, Daragh & Merola, Rossana, 2017. "Countercyclical capital rules for small open economies," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 332-351.
    6. repec:fep:journl:v:28:y:2017:i:1:p:50-74 is not listed on IDEAS
    7. Markus Haavio & Caterina Mendicino & Maria Teresa Punzi, 2014. "Financial and economic downturns in OECD countries," Applied Economics Letters, Taylor & Francis Journals, vol. 21(6), pages 407-412, April.
    8. Isao Ishida & Virmantas Kvedaras, 2015. "Modeling Autoregressive Processes with Moving-Quantiles-Implied Nonlinearity," Econometrics, MDPI, Open Access Journal, vol. 3(1), pages 1-53, January.
    9. Monica Billio & Anna Petronevich, 2017. "Dynamical Interaction Between Financial and Business Cycles," Working Papers 2017:24, Department of Economics, University of Venice "Ca' Foscari".
    10. Ciccarelli Matteo & Ortega Eva & Valderrama Maria Teresa, 2016. "Commonalities and cross-country spillovers in macroeconomic-financial linkages," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(1), pages 231-275, January.
    11. Paulo Júlio & Ricardo Mourinho Félix & Gabriela Lopes de Castro & José R. Maria, 2015. "Financial Fragmentation Shocks," Working Papers w201508, Banco de Portugal, Economics and Research Department.
    12. Bluwstein, Kristina, 2017. "Asymmetric Macro-Financial Spillovers," Working Paper Series 337, Sveriges Riksbank (Central Bank of Sweden).
    13. Schleer, Frauke & Semmler, Willi, 2013. "Financial sector-output dynamics in the euro area: Non-linearities reconsidered," ZEW Discussion Papers 13-068, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    14. Kirstin Hubrich, 2012. "Comment on "Global House Price Fluctuations: Synchronization and Determinants"," NBER Chapters,in: NBER International Seminar on Macroeconomics 2012, pages 167-173 National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Financial shocks; heterogeneity; lead-lag relationships; macro-financial linkages;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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