 From the core to the European periphery: Spillover effects of financial cyclesLukáš Jursa and Jan Janků Emerging Markets Review, 2025, vol. 68, issue C Abstract: We construct a comprehensive Financial Cycle Index (FCI), combining credit, credit-to-GDP, house prices, and equity prices, to examine how negative financial shocks from the Euro Area (EA) and the United States (US) transmit to peripheral European economies. Using a Bayesian Global Vector Autoregression (BGVAR) model with stochastic volatility, we find that EA shocks exert stronger effects on inflation and output, underscoring tight regional linkages. In contrast, US shocks drive more persistent declines in short-term interest rates and sharper increases in term premiums, especially in smaller open economies. Replacing the FCI with the Country-Level Index of Financial Stress (CLIFS) reveals faster, more volatile financial-cycle responses in the periphery, but with weaker and shorter-lived real-sector effects, highlighting the role of acute financial stress versus longer-term credit and asset-price dynamics. These core-to-periphery spillovers persist under de facto floating exchange rates and remain robust to macroprudential-policy controls and alternative model specifications. Keywords: Bayesian models; Global financial cycle; Monetary policy; Spillovers (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:68:y:2025:i:c:s1566014125000548 DOI: 10.1016/j.ememar.2025.101305 Access Statistics for this article Emerging Markets Review is currently edited by Jonathan A. Batten More articles in Emerging Markets Review from Elsevier |
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