A financially stressed Euro area

Marcus Kappler and Frauke Schleer

No 2016-22, Economics Discussion Papers from Kiel Institute for the World Economy

Abstract: The authors analyze 149 newly compiled monthly time series on financial market stress conditions in the euro area. With the aid of a factor model they find different sources of financial stress which are important for selecting and preparing the appropriate policy response. The existence of a "Periphery Banking Crisis" factor, a "Stress" factor and a "Yield Curve" factor seems to explain the bulk of volatility in recent euro area financial sector data. Moreover, by a real-time forecasting exercise, the authors show that including additional factors - that reflect financial sector conditions - improves forecasts of economic activity at short horizons.

Keywords: financial stress; dynamic factor models; financial crisis; euro area; forecasting (search for similar items in EconPapers)
JEL-codes: C38 G01 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eec, nep-for and nep-net
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https://www.econstor.eu/bitstream/10419/141421/1/860168409.pdf (application/pdf)

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Journal Article: A financially stressed euro area (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201622

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