Template-Type: ReDIF-Paper 1.0
Author-Name: Mirela Miescu
Author-Name-First: Mirela
Author-Name-Last: Miescu
Author-Name: Haroon Mumtaz
Author-Name-First: Haroon
Author-Name-Last: Mumtaz
Title: Financial shocks and economic activity
Abstract: We investigate the effects of US financial shocks on economic activity in a<br/>structural mixed frequency VAR model that incorporates daily and lower frequency<br/>data. The VAR is identified with a heteroscedasticity-based event study approach. The identifying assumption is that financial shocks are more volatile than other disturbances during high profile financial events. We find that a favorable financial shock that increases asset prices leads to a rise in real activity, house prices and short term rates while it decreases unemployment, uncertainty, credit and term spreads. The financial shock has substantial effects across the borders as well, triggering a strong and synchronized increase in asset prices and industrial production in the rest of the G7 countries.
Creation-Date: 2020
Number: 302383965
Classification-JEL: C32`, F3, G01
Keywords: financial shocks, event study, heteroscedasticity identification, structural VAR
Handle: RePEc:lan:wpaper:302383965