Macro-financial spillovers

John Cotter; Mark Sebastian Hallam; Kamil Yilmaz

doi:10.1016/j.jimonfin.2023.102824

Macro-financial spillovers

John Cotter, Mark Sebastian Hallam, Kamil Yilmaz

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

We analyse spillovers between the real and financial sides of the US economy, and between those in the US and other advanced economies. The approach developed allows for differences in sampling frequency between financial and macroeconomic data. We find that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions. This result holds both for domestic US macro-financial spillovers, and also those between the US and other advanced economies. Our macro-financial spillover measures are found to have significant predictive ability for future macroeconomic conditions in both in-sample and out-of-sample forecasting environments. Furthermore, the predictive ability frequently of our macro-financial measures frequently exceeds that of purely financial systemic risk measures previously employed in the literature for the same task.

Original language	English
Article number	102824
Number of pages	28
Journal	Journal of International Money and Finance
Volume	133
Early online date	17 Mar 2023
DOIs	https://doi.org/10.1016/j.jimonfin.2023.102824
Publication status	Published - 1 May 2023

Bibliographical note

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10.1016/j.jimonfin.2023.102824Licence: CC BY-NC-ND

Macro-financial spillovers
© 2023 Published by Elsevier Ltd.
Final published version, 1.97 MBLicence: CC BY-NC-ND

Cite this

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title = "Macro-financial spillovers",

abstract = "We analyse spillovers between the real and financial sides of the US economy, and between those in the US and other advanced economies. The approach developed allows for differences in sampling frequency between financial and macroeconomic data. We find that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions. This result holds both for domestic US macro-financial spillovers, and also those between the US and other advanced economies. Our macro-financial spillover measures are found to have significant predictive ability for future macroeconomic conditions in both in-sample and out-of-sample forecasting environments. Furthermore, the predictive ability frequently of our macro-financial measures frequently exceeds that of purely financial systemic risk measures previously employed in the literature for the same task.",

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AU - Hallam, Mark Sebastian

AU - Yilmaz, Kamil

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N2 - We analyse spillovers between the real and financial sides of the US economy, and between those in the US and other advanced economies. The approach developed allows for differences in sampling frequency between financial and macroeconomic data. We find that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions. This result holds both for domestic US macro-financial spillovers, and also those between the US and other advanced economies. Our macro-financial spillover measures are found to have significant predictive ability for future macroeconomic conditions in both in-sample and out-of-sample forecasting environments. Furthermore, the predictive ability frequently of our macro-financial measures frequently exceeds that of purely financial systemic risk measures previously employed in the literature for the same task.

AB - We analyse spillovers between the real and financial sides of the US economy, and between those in the US and other advanced economies. The approach developed allows for differences in sampling frequency between financial and macroeconomic data. We find that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions. This result holds both for domestic US macro-financial spillovers, and also those between the US and other advanced economies. Our macro-financial spillover measures are found to have significant predictive ability for future macroeconomic conditions in both in-sample and out-of-sample forecasting environments. Furthermore, the predictive ability frequently of our macro-financial measures frequently exceeds that of purely financial systemic risk measures previously employed in the literature for the same task.

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