Working Paper: CEPR ID: DP17130
Authors: Mario Forni; Luca Gambetti; Nicol Maffeifaccioli; Luca Sala
Abstract: Financial shocks generate a protracted and quantitatively important effect on real economic activity and financial markets only if the shocks are both negative and large. Otherwise, their role is quite modest. Financial shocks have become more important for economic fluctuations after the 2000 and have contributed substantially to deepening the recessions of 2001 and 2008. The evidence is obtained using a new econometric procedure based on a VMA representation that includes a nonlinear function of the financial shock.
Keywords: SVAR; financial shocks; nonlinearity; asymmetry; financial crisis
JEL Codes: C32; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Large negative financial shocks (F65) | significant downturns in real economic activity (F44) |
| Large negative financial shocks (F65) | significant downturns in the stock market (G10) |
| Large positive financial shocks (F65) | modest effects on economic activity (F69) |
| One standard deviation shocks or smaller (E39) | symmetric effects (C32) |
| Financial shocks (F65) | exacerbated effects during high uncertainty (D81) |
| Financial shocks (F65) | more important for economic fluctuations post-2000 (E32) |
| Nonlinearities in financial shocks transmission mechanisms (E44) | significant effects on the real economy (E44) |