Inspecting cross-border macro-financial mechanisms

Eddie Gerba, Danilo Leiva-Leon and Margarita Rubio

Journal of International Money and Finance, 2024, vol. 145, issue C

Abstract: We model structural time-varying macro-financial linkages between the U.S. and euro area using a large dataset for each region. We extract both real and financial cycles and identify shocks, using a factor model with drifting parameters. To interpret the mechanisms that drive the empirical results, we contextualize our estimates using a two-country financial accelerator model. Our evidence speaks clearly of an asymmetric cross-border transmission between U.S. and euro area, especially in the financial domain. This is confirmed by our theoretical complement, which shows a strong transmission of U.S. TFP shocks. Moreover, the U.S. is a more leveraged economy, which accentuates the financial accelerator effect.

Keywords: Dynamic factor models; TVP-VAR; DSGE; U.S.; Euro area (search for similar items in EconPapers)
JEL-codes: C32 C55 E32 E44 F41 F44 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:145:y:2024:i:c:s0261560624000810

DOI: 10.1016/j.jimonfin.2024.103094

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