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Vulnerable growth in the Euro Area: Measuring the financial conditions

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  • Figueres, Juan Manuel
  • Jarociński, Marek

Abstract

This paper examines which measures of financial conditions are informative about the tail risks to output growth in the euro area. The Composite Indicator of Systemic Stress (CISS) is more informative than indicators focusing on narrower segments of financial markets or their simple aggregation in the principal component. Conditionally on the CISS one can reproduce for the euro area the stylized facts known from the US, such as the strong negative correlation between conditional mean and conditional variance that generates stable upper quantiles and volatile lower quantiles of output growth. JEL Classification: C12, E37, E44

Suggested Citation

  • Figueres, Juan Manuel & Jarociński, Marek, 2020. "Vulnerable growth in the Euro Area: Measuring the financial conditions," Working Paper Series 2458, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20202458
    Note: 400529
    as

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    References listed on IDEAS

    as
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    6. Adrian, Tobias & Duarte, Fernando & Liang, Nellie & Zabczyk, Pawel, 2020. "Monetary and Macroprudential Policy with Endogenous Risk," CEPR Discussion Papers 14435, C.E.P.R. Discussion Papers.
    7. Simon Gilchrist & Benoit Mojon, 2018. "Credit Risk in the Euro Area," Economic Journal, Royal Economic Society, vol. 128(608), pages 118-158, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    downside risk; macro-financial linkages; quantile regression;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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