Financial conditions and economic activity: the potential impact of the targeted long-term refinancing operations (TLTROs)

Hiona Balfoussia and Heather Gibson

Applied Economics Letters, 2016, vol. 23, issue 6, 449-456

Abstract: This article explores the relationship between financial conditions and real economic activity in the euro area as a whole and for Greece in particular. We use a financial conditions index (see Angelopoulou et al. 2014) which is constructed using a wide range of prices, quantities, spreads and survey data in line with theory. We update the indices and use them within a VAR framework to estimate the potential impact of the targeted long-term refinancing operations (TLTROs) on aspects of economic activity. Our results suggest that financial conditions do have a significant effect on economic activity, and thus the TLTROs, to the extent that they are designed to improve financial conditions, will provide a boost to the real economy.

Date: 2016
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Working Paper: Financial conditions and economic activity: the potential impact of the targeted longer-term refinancing operations (TLTROS) (2015)
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DOI: 10.1080/13504851.2015.1080799

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