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Macro-financial interactions in a changing world

Author

Listed:
  • Eddie Gerba

    (Danmarks Nationalbank)

  • Danilo Leiva-Leon

    (Banco de España)

Abstract

We measure the time-varying strength of macro-financial linkages within and across the US and euro area economies by employing a large set of information for each region. In doing so, we rely on factor models with drifting parameters where real and financial cycles are extracted, and shocks are identified via sign and exclusion restrictions. The main results show that the euro area is disproportionately more sensitive to shocks in the US macroeconomy and financial sector, resulting in an asymmetric cross-border spillover pattern between the two economies. Moreover, while macro-financial interactions have steadily increased in the euro area since the late 1980s, they have oscillated in the US, exhibiting very long cycles of macro-financial interdependence.

Suggested Citation

  • Eddie Gerba & Danilo Leiva-Leon, 2020. "Macro-financial interactions in a changing world," Working Papers 2018, Banco de España.
    • Handle: RePEc:bde:wpaper:2018
    as

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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/20/Files/dt2018e.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    macro-financial linkages; dynamic factor models; TVP-VAR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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