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Asymmetric effects of the international transmission of US financial stress. A threshold-VAR approach

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  • Evgenidis, Anastasios
  • Tsagkanos, Athanasios

Abstract

During period of financial stress, the effect of financial stress shocks on economic activity might be different from what is usually observed in normal times. This paper investigates the transmission of financial stress episodes on the macroeconomy during stressed and normal periods and it explores how these events are transmitted to the Eurozone. We find that, a detrimental US financial shock leads to a worsening in economic and financial conditions both domestically and in the Eurozone. In addition, during turmoil times, financial accelerator mechanism amplifies and propagates the transmission of US financial stress shocks to the Eurozone by reducing its economic activity. Moreover, small financial stress shocks, rather than infrequent large ones, are able to create large fluctuations in inflation rates. Last, the effect of a detrimental shock in financial conditions has larger negative effects in the economy compared with the positive effects that would be generated by a beneficial shock in financial conditions.

Suggested Citation

  • Evgenidis, Anastasios & Tsagkanos, Athanasios, 2017. "Asymmetric effects of the international transmission of US financial stress. A threshold-VAR approach," International Review of Financial Analysis, Elsevier, vol. 51(C), pages 69-81.
    • Handle: RePEc:eee:finana:v:51:y:2017:i:c:p:69-81
    DOI: 10.1016/j.irfa.2017.03.003
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    More about this item

    Keywords

    Financial stress; Financial stability; Threshold-VAR; Monetary policy;
    All these keywords.

    JEL classification:

    • 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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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