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Financial Market Turbulence and Macro-Financial Developments in Ireland: a Mixed Data Sampling (MIDAS) Approach

Author

Listed:
  • Parla, Fabio

    (Central Bank of Ireland)

Abstract

In this paper, we construct a weekly measure of systemic stress across a range of indicators for Irish financial markets, covering money, sovereign bonds, equity, banking and foreign exchange markets by using a time-varying correlation-based approach. We compare the ability of the resulting index to capture known financial market stress events in Ireland with existing alternative measures. Furthermore, we use the indicator as a proxy of financial distress to assess the high-frequency propagation mechanism of financial markets shocks to the macroeconomy. Given that macroeconomic variables are sampled at a monthly frequency, the temporal transmission of shocks is carried through a structural Bayesian mixed-frequency Vector Autoregressive model. We find evidence of a moderate temporal aggregation bias due to aggregating weekly observations of the financial stress indicator to a monthly frequency. In particular, the results suggest that the response of the macroeconomic variables depends on the timing of the shocks within the month.

Suggested Citation

  • Parla, Fabio, 2021. "Financial Market Turbulence and Macro-Financial Developments in Ireland: a Mixed Data Sampling (MIDAS) Approach," Research Technical Papers 7/RT/21, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:7/rt/21
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    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/07rt21-financial-market-turbulence-macro-financial-developments-in-ireland.pdf?sfvrsn=7
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    Cited by:

    1. Hallissey, Niamh & Killeen, Neill & Wosser, Michael, 2022. "Identifying and assessing systemic risks in Ireland: a review of the Central Bank’s toolkit," Financial Stability Notes 16/FS/22, Central Bank of Ireland.

    More about this item

    Keywords

    Financial stress index; macro-financial linkages; Mixed-Frequency VAR; MIDAS;
    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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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