Working Paper: CEPR ID: DP9436
Authors: Esteban Prieto; Sandra Eickmeier; Massimiliano Marcellino
Abstract: We analyze the contribution of credit spread, house and stock price shocks to GDP growth in the US based on a Bayesian VAR with time-varying parameters estimated over 1958-2012. Our main findings are: (i) The contribution of financial shocks to GDP growth fluctuates from about 20 percent in normal times to 50 percent during the global financial crisis. (ii) The Great Recession and the subsequent weak recovery can largely be traced back to negative housing shocks. (iii) Housing shocks have become more important for the real economy since the early-2000s, and negative housing shocks are more important than positive ones.
Keywords: financial shocks; global financial crisis; macro-financial linkages; time-varying parameter VAR model
JEL Codes: C32; E3; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial shocks (F65) | GDP growth (O49) |
| House price shocks (R31) | GDP growth (O49) |
| Negative housing market developments (R31) | Weak recovery post-Great Recession (E32) |
| Credit spread shocks (G19) | GDP growth (O49) |
| Credit spread shocks (G19) | Negative contributions during banking crises (F65) |
| Negative financial shocks (E44) | Macro economy (E66) |
| Increasing importance of housing shocks (R21) | Macro economy (E66) |