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Macro-financial interactions in a changing world

Eddie Gerba () and Danilo Leiva-Leon ()
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Eddie Gerba: Danmarks Nationalbank

No 2018, Working Papers from Banco de España

Abstract: We measure the time-varying strength of macro-financial linkages within and across the US and euro area economies by employing a large set of information for each region. In doing so, we rely on factor models with drifting parameters where real and financial cycles are extracted, and shocks are identified via sign and exclusion restrictions. The main results show that the euro area is disproportionately more sensitive to shocks in the US macroeconomy and financial sector, resulting in an asymmetric cross-border spillover pattern between the two economies. Moreover, while macro-financial interactions have steadily increased in the euro area since the late 1980s, they have oscillated in the US, exhibiting very long cycles of macro-financial interdependence.

Keywords: macro-financial linkages; dynamic factor models; TVP-VAR (search for similar items in EconPapers)
JEL-codes: C32 C55 E32 E44 F41 F44 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2020-07
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
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