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

Fabio Parla
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Fabio Parla: Central Bank of Ireland

No 7/RT/21, Research Technical Papers from 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.

Keywords: Financial stress index; macro-financial linkages; Mixed-Frequency VAR; MIDAS (search for similar items in EconPapers)
JEL-codes: C32 E44 G10 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
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Citations: View citations in EconPapers (1)

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