•We examine the financial contagion between stock markets.•We identify the possible channels of transmission of the 2011 stock market crash.•We use the DAG-copula based approach to study the ...structure of causal dependence.•Diversification benefits are limited especially during crisis periods.
The objective of this paper is to empirically investigate whether there is a contagion phenomenon between the stock markets during the July–August-2011 stock market crash. When there is a market contagion, we will identify the propagation channel through which the crash is transmitted. Hence, after checking if there is financial contagion between the stock markets, we will see if the transmission mechanism “constraints of wealth” outweighs that of the “portfolio rebalancing”. An additional test covering the interdependence between the stock and bond markets during the crash helps us verify whether the transmission is due either to the “cross-market rebalancing” channel or to the “flight to quality” phenomenon.
On the basis of the combination of the copula theory and the directed acyclic graph to study the structure of causal dependence between the stock market during the period that lies between 01/02/2010 and 28/11/2012, we show that the links between countries are different between the pre-crash period and that of the crash. More specifically, the links that do not exist during normal times seem to have a major role during the crash period. We interpret this result as an evidence of the existence of pure contagion. On the one hand, the tests show that the channel of the “portfolio rebalancing” was the major mechanism for the spread of the crash. On the other hand, the phenomenon of the cross-market rebalancing existed only in Germany; whereas, that of the flight to quality was in all the other studied stock markets.
We contribute to the literature on international risk spillovers by developing a unified framework based on spatial econometrics that enables us to address the following questions: (i) what are the ...effective transmission channels – real linkages and informational channels – of international risk spillovers across countries and/or regions, (ii) what are the most dominant ones, and (iii) which countries are most at risk for their environment and which are suffering the most from international exposure. Our analysis, based on 41 advanced and emerging economies from 2008Q1 to 2012Q4, shows that among the considered channels for explaining international spillovers of sovereign bond spreads, the informational channel is of utmost importance. Our results challenge previous findings from the literature in which the empirical strategy did not accommodate altogether important features of country spillovers, such as the co-existence of multiple transmission channels in the presence of contemporaneous and time-lagged interactions. Ultimately, our stress-testing analysis reveals important insights on countries prone either to international spillovers, international exposure or both at the regional and the worldwide level.
Sentimental Shocks and House Prices Anastasiou, Dimitris; Kapopoulos, Panayotis; Zekente, Kalliopi-Maria
The journal of real estate finance and economics,
11/2023, Volume:
67, Issue:
4
Journal Article
Peer reviewed
We investigate the impact of sentimental shocks on house price fluctuations in the Euro area. To this end, we isolate and measure non-fundamental-based sentimental shocks by employing survey-based ...indicators that proxy four key types of expectations of housing market participants. The novelty of our study is that specific sentimental shocks are identified through four uncertainty transmission channels in the real estate market (i.e., the precautionary savings channel, the credit supply channel, the credit demand, and the inflationary channel). We provide strong evidence that sentimental shocks drive fluctuations in house prices even in the absence of any changes in aggregate fundamentals. Finally, we find that these results are more pronounced in the peripheral Euro area countries. The finding that the real estate market is also governed by irrational behavior implies that both governments and policymakers should consider sentimental shocks when they form their real estate market policies or take actions to stabilize and improve the proper function of the European housing market.
•We categorize Chinese expansionary monetary policies based on interest rates, monetary easing, and liquidity decisions in the context of COVID-19.•The stock market reacts positively only to ...liquidity policy announcements during and after COVID-19 at the aggregate and industry levels.•At the firm level, small and medium-sized enterprises and private-owned enterprises benefit more than large enterprises and state-owned enterprises from the implementation of liquidity policies during the pandemic.
We categorize expansionary monetary policies based on interest rates, monetary easing, and liquidity decisions. We find that the stock market reacts positively to liquidity policy announcements by a more significant margin during and after the COVID-19 at market and industry levels compared with reactions to interest rate or monetary easing policy announcements. The economic consequences are large and persistent. Using firm characteristics as proxies for monetary policy transmission channels, we find that at firm level, the positive responses to liquidity policy announcements during the crisis are more pronounced for small and medium-sized businesses and non-state-owned enterprises relative to other enterprises.
Using accounting data for 7722 non-financial firms in 42 countries, we examine how the 2007–2009 crisis affected firm performance and how various linkages propagated shocks across borders. We isolate ...and compare effects from changes in business cycle, international trade, and external financing conditions, on firms' profits, sales and investment using both sectoral benchmarks and firm-specific sensitivities estimated prior to the crisis. We find that the crisis had a bigger negative impact on firms with greater sensitivity to business cycle and trade developments, particularly in countries more open to trade. Interestingly, financial openness made limited difference.
► We study how the 2007–09 crisis affected firms' profits, sales and investment. ► We isolate effects from changes in business cycle, international trade, and financing conditions. ► We further examine how various linkages propagated shocks across borders. ► The crisis had a bigger negative impact on firms with greater sensitivity to business cycle and trade. ► Trade openness propagated shocks, while financial openness made limited difference.
What are the cross-border spillovers from major economies' quantitative easing policies to their trading partners? We provide evidence by concentrating on spillovers from the US to Canada during the ...ZLB period when QE policies were actively used. We identify QE shocks in the US and estimate their impact on a large number of Canadian macroeconomic and financial variables. Then we analyze transmission channels of foreign QE shocks to the domestic economy. Our results suggest that US QE shocks are expansionary for Canada despite a currency appreciation. This is because they spill over to domestic borrowing costs, lowering long-term rates as well as financial premiums, and increasing asset prices. We find evidence for both portfolio balance and risk channels.
In the context of proposals for a stronger focus on results in Cohesion Policy post-2020, it is necessary to strengthen the link between interventions and evidence on effectiveness. This paper argues ...that growth regressions and regression discontinuity analysis focusing on regional growth do not provide sufficient detail to support policy-makers in intervention design. A more nuanced picture would be achieved by unpacking intervention in different policy areas at the micro-level and analyzing the channels through which policy contributes to economic growth. The paper reviews the main direct and indirect transmission channels in three areas: research and innovation; support to enterprises; and infrastructure. In this respect, impact evaluations at beneficiary and, in particular, firm level offer a rich potential source of evidence and need to be systematically built into data collection and evaluation of post-2020 Cohesion Policy.
This paper aims to uncover the oil curse by presenting the distinctive characteristics of petrostates. Furthermore, it also clusters the countries to determine the mechanisms of oil resources by the ...importance of each transmission channel. Fixed and random effect models are performed, coupled with quantile regression. The results are threefold. First, oil abundance is favorable for economic growth. Second, oil dependence indirectly hinders growth by transmission mechanisms: in petrostates, the effect of indirect channel is the greatest by inhibiting human capital, the Dutch disease effect, which cripples the economic growth and by the increase in government intervention; and the institution effect turns to be positive. However, in non-petrostates, the greatest impact is experienced by different indirect channels. This study has further deepened our perception of the “oil curse” hypothesis and its transmission channels. Transmission channels determine whether natural resources are a curse or a blessing.
•Tropical cyclones and fluvial floods have significant negative impacts on economic growth in the long run.•Development cannot protect against economic growth losses from tropical ...cyclones.•Development can prevent economic growth losses from fluvial floods.•Rising household consumption and government expenditure are the main growth-loss mitigating channels.•Rising investment is the main growth-loss amplifying channel.
While the short-term economic impacts of extreme weather events are well documented, little is known about their impacts and transmission channels on economic growth in the long run. Using panel data regressions and national shares of people exposed to tropical cyclones and fluvial floods as exogenous predictors, we find output growth losses from severe tropical cyclones and fluvial floods to accumulate to −6.5% and −5.0% over 15 years, respectively. We further observe a strongly non-linear increase of these losses with disaster intensity. To understand how the observed impacts depend on the countries’ development level, we implement a country-specific regression framework. While we find evidence that higher development can prevent economic growth losses from fluvial floods, this is not the case for tropical cyclones. Further, we systematically study the economic and non-economic transmission channels through which these events impact on economic growth in the long run. We find that rising household consumption and government expenditure are the main growth-loss mitigating channels, whereas rising investment is the main growth-loss amplifying channel in the period 1971–2010.
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