In this paper, we investigate commonalities and spillovers in macro-financial linkages across developed economies. A Bayesian panel vector autoregression (VAR) model with real and financial variables identifies significant common components, especially during the Great Recession. Nevertheless, country-specific factors remain important, which is consistent with the heterogeneous behavior observed across countries over time. We also find that spillovers across countries and between real and financial variables are key to explain economic fluctuations. A shock to a variable in a given country affects all other countries, and the transmission seems to be faster and deeper between financial variables than between real variables. For a shock to a financial variable to have a noticeable effect on the real economy elsewhere, it needs to be either common to all countries or to have originated in a systemic country.
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe investigate heterogeneity and spillovers in macro-financial linkages across developed economies, with a particular emphasis in the most recent recession. A panel Bayesian VAR model including real and financial variables identifies a statistically significant common component, which turns out to be very significant during the most recent recession. Nevertheless, countryspecific factors remain important, which explains the heterogeneous behaviour across countries observed over time. Moreover, spillovers across countries and between real and financial variables are found to matter: A shock to a variable in a given country affects all other countries, and the transmission seems to be faster and deeper between financial variables than between real variables. Finally, shocks spill over in a heterogeneous way across countries.JEL classification: C11, C33, E32, F44 Key words: Financial crisis, Macro-financial linkages, panel VAR models 1 Non-technical summaryThere are many channels through which macroeconomic and financial linkages can arise. For instance, a deterioration of financial conditions will affect the economy through a negative wealth effect on consumption and investment decisions, or through credit rationing given the difficulty to identify solvent borrowers. On the other hand, an economic downturn can affect the valuation of financial assets, since the present value of future cash flows decreases. The final effect on the economy depends not only on agents' behavior but also on the institutional framework they operate in, both of which vary across countries and over time.This paper addresses the topic of heterogeneous macro-financial linkages across countries and over time and quantifies the importance of country spillovers from real and financial shocks. We analyze the evolution and heterogeneity in macro-financial linkages and international spillovers over the last three decades for some developed economies in a unified framework. We build a time-varying panel VAR model where real and financial variables are jointly modelled for a set of countries including the G7 and other relevant European economies. Of a total of 10 countries, 7 belong to the European Union and of those, 5 are euro area members. Although tight institutional and economic interdependencies may have made euro area countries more alike, the recent recession has shown that hand in hand with some common behavior, there may still be a s...
We estimate Markov switching vector autoregressive systems for loans to firms and loans to households to investigate their relationship to interest rates and investment and consumption, respectively. We find evidence for different reactions of lending to shocks in real variables and interest rates across regimes both within countries and across countries for a given regime. We find evidence for a procyclical effect of lending during specific growth periods in both countries.
We analyse the interaction between credit and asset prices in the transmission of shocks to the real economy using a Markov switching vector autoregression. While we confirm the existence of different regimes, we find no evidence of financial imbalances coming from mutually reinforcing effects of lending and asset prices in the euro area. In the USA, on the contrary, there is some evidence for reinforcing effects between asset prices and lending. Moreover, it turns out that in the USA asset prices are important determinants of GDP, while in the euro area lending is an important determinant of inflation. Copyright � 2010 The Authors. Journal compilation � 2010 Blackwell Publishing Ltd and The University of Manchester.
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