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The propagation of financial turbulence: interdependence, spillovers, and direct and indirect effects

Citation

Jing, Z and Elhorst, JP and Jacobs, JPAM and de Haan, J, The propagation of financial turbulence: interdependence, spillovers, and direct and indirect effects, Empirical Economics pp. 1-24. ISSN 0377-7332 (2017) [Refereed Article]


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DOI: doi:10.1007/s00181-017-1249-y

Abstract

We investigate the propagation of financial turbulence via trade, capital flows, and distance channels in the pre-crisis and Global Financial Crisis periods by modeling spillover and interdependence effects, using spatial econometric techniques. Financial turbulence is proxied by the ratio of nonperforming loans to total loans in a country. Spillover effects are defined as significant changes in the linkages between countries due to a shock, and interdependence effects as strong linkages among pairs of countries independent of shocks. Using annual data of 40 countries from 2003 to 2010, we find that interdependence and spillover effects should be jointly analyzed. Furthermore, our results suggest that the capital flows channel is more important than the other two channels in capturing propagation of financial turbulence. By deriving what is known in the spatial econometrics literature as direct and indirect effect estimates, we show that the marginal effects of macroeconomic variables (like GDP growth, inflation, and credit growth) on financial turbulence take different forms during a crisis than in tranquil periods.

Item Details

Item Type:Refereed Article
Keywords:financial turbulence, interdependence, spillover effects, spatial panel econometrics
Research Division:Economics
Research Group:Econometrics
Research Field:Economic Models and Forecasting
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Economic Growth
Author:Jacobs, JPAM (Dr Jan Jacobs)
ID Code:122647
Year Published:2017
Deposited By:Economics and Finance
Deposited On:2017-11-21
Last Modified:2017-11-21
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