Financial Shocks and the Macroeconomy: Heterogeneity and Non-Linearities

Hubrich, Kirstin; D’Agostino, Antonello; Ĉervená, Marianna; Ciccarelli, Matteo; Guarda, Paolo; Haavio, Markus; Jeanfils, Philippe; Mendicino, Caterina; Ortega, Eva; Valderrama, María Teresa; Endresz, Marianna

doi:10.2139/ssrn.2197230

Cited by 20 publications

(11 citation statements)

References 30 publications

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“…The data set is based on an update of the database used in Hubrich et al . (2013). We consider eight time series of quarterly data: real loans of monetary financial institutions (MFIs) to private households (LHH), real MFI loans to non‐financial corporations (LNF), real bank credit to the non‐financial private sector (BCN), real residential property prices (RPP), real equity prices (EQP), nominal long‐term interest rates (LTN) and the nominal term spread (SPN).…”

Section: Methodology and Datamentioning

confidence: 99%

Financial Cycles in Euro Area Economies: A Cross‐Country Perspective Using Wavelet Analysis*

Mandler

Scharnagl

2021

Oxf Bull Econ Stat

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We study the cross-country dimension of financial cycles for six euro area countries using wavelet analysis. Estimated wavelet cohesions show that cycles in equity prices and interest rates display stronger synchronization across countries than real output cycles, whereas credit variables and house prices show lower cross-country synchronization. We propose a wavelet-based extension to the spectral envelope that is similar to a frequency-based time-varying principal component analysis. The country loadings show that, contrary to all other variables, cycles in loans to households and house prices in Germany and the Netherlands are negatively or less strongly correlated with the common cycles.JEL Classification numbers: C32, C38, E44, F36. *This paper represents the authors' personal opinions and does not necessarily reflect the views of the Deutsche Bundesbank or of the Eurosystem. This paper is a substantially revised version of our work on the ECB report Real and financial cycles in EU countries: stylised facts and modelling implications . We are indebted to Davor Kunovac, Gerhard Rünstler and Bruno de Backer for helpful comments and discussions. Parts of this paper have been circulated as a Bundesbank Discussion Paper written with Davor Kunovac, see Kunovac, Mandler and Scharnagl (2018).1 For example, Basel III regulations link counter-cyclical capital buffers to a financial cycle proxy, the deviation of the credit-to-GDP ratio from its long-run trend (e.g. Drehmann and Tsatsaronis, 2014).

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Section: Methodology and Datamentioning

confidence: 99%

Financial Cycles in Euro Area Economies: A Cross‐Country Perspective Using Wavelet Analysis*

Mandler

Scharnagl

2021

Oxf Bull Econ Stat

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“…They find empirical support for the hypothesis of a change in the transmission of financial shocks to the US macroeconomy in episodes of high stress. Hubrich et al (2013) analyse the effects of financial shocks on the macroeconomy for EU and OECD countries and find evidence for nonlinearities and heterogeneity across countries in the transmission of financial shocks to the macroeconomy. Other studies also highlight empirical nonlinearities arguing that transmission channels may operate differently depending on underlying conditions, e.g.…”

Section: Financial Constraints and Economic Dynamics: Empirical Evidencementioning

confidence: 99%

Untitled

2022

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We conduct a novel empirical analysis of the role of leverage of financial institutions for the transmission of financial shocks to the macroeconomy. For that purpose, we develop an endogenous regimeswitching structural vector autoregressive model with time-varying transition probabilities that depend on the state of the economy. We propose new identification techniques for regime switching models.Recently developed theoretical models emphasize the role of bank balance sheets for the buildup of financial instabilities and the amplification of financial shocks. We build a market-based measure of leverage of financial institutions employing institution-level data and find empirical evidence that real effects of financial shocks are amplified by the leverage of financial institutions in the financial constraint regime. We also find evidence for a role of heterogeneity of financial institutions including depository financial institutions, globally systemically important banks, and selected nonbank financial institutions. Our results suggest that the leverage ratio is a useful indicator from a policy perspective.

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“…In contrast to other widely used approaches, such as turning-point analysis (eg. Claessens, Kose and Terrones, 2011;Drehmann, Borio and Tsatsaronis, 2012;Hubrich et al, 2013;Stremmel, 2015) or band-pass filters (eg. Aikman, Haldane and Nelson, 2015;Drehmann et al, 2012;Meller and Metiu, 2 For a comprehensive survey on early warning indicators for financial crises, see Tölö, Laakkonen and Kalatie (2018).…”

Section: Introductionmentioning

confidence: 99%