Financial distress and real economic activity in Lithuania: a Granger causality test based on mixed-frequency VAR

Collection:
Mokslo publikacijos / Scientific publications
Document Type:
Straipsnis / Article
Language:
Anglų kalba / English
Title:
Financial distress and real economic activity in Lithuania: a Granger causality test based on mixed-frequency VAR
In the Journal:
Empirical economics. 2021, 61, p. 855-881
Subject Category:
Summary / Abstract:

LTReikšminiai žodžiai: Granger priežastingumas; Finansinio stabilumo indeksas; Dažnio rodikliai; Granger causality; Financial stress index; Frequency.

ENIn this paper, we extend the monthly financial stress index for Lithuania, computed by the European Central Bank, to a daily frequency and we also include banking sector stress among its constituents, beyond bond, equity and foreign exchange markets. We investigate the causal relationship between the daily financial stress index and monthly industrial production growth, using a Granger causality test applied to a mixed-frequency VAR. Our results suggest evidence of Granger causality from financial stress to industrial production growth once the index is enriched by daily observations from the financial markets. Our findings, based on impulse response analysis, confirm the negative effect of financial stress on real economy found in the empirical literature through common frequency analysis. Finally, the comparison between common and mixed frequency analysis suggests that ignoring the information content of daily data would lead to a mild temporal aggregation bias that could affect the evaluation of financial stress shocks on industrial production. [From the publication]

DOI:
10.1007/s00181-020-01888-2
ISSN:
0377-7332; 1435-8921
Related Publications:
From boom to bust: lessons from Lithuania / Raimondas Kuodis, Tomas Ramanauskas. Pinigų studijos. 2009, Nr. 1, p. 96-104.
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https://www.lituanistika.lt/content/94983
Updated:
2022-05-24 17:32:37
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