Macro-Financial Linkages: The Role of the Institutional Framework

49 Pages Posted: 7 Mar 2018

See all articles by Aurélien Leroy

Aurélien Leroy

LAREFI, University of Bordeaux

Adrian Pop

University of Nantes

Date Written: February 1, 2018


In this paper, we assess the quantitative impact of various financial shocks on the real activity and explicitly address the issue of heterogeneity in the macro-financial linkages. For that purpose, we use VAR models as well as the local projection method for 18 OECD countries based on quarterly data between 1996 and 2015. We take into account three main dimensions of the institutional framework likely to explain the observed cross-country heterogeneity in the propagation of financial shocks: the product market regulation, the employment protection, and the financial structure. Overall, our main findings indicate that financial shocks have a stronger impact in countries characterized by a higher competition-friendly regulatory stance, a stronger employment protection, and a more market-oriented financial structure. We also show that the varieties of capitalism, described by the particular mix of these different institutional areas, do not play a significant role in shaping the macro-financial linkages. This result suggests that although considered individually goods, labor, and financial markets regulations are robustly linked to macroeconomic fluctuations, there is no support for superior performance of any institutional arrangement.

Keywords: macro-financial linkages; financial shocks; heterogeneity; institutional complementarities

JEL Classification: C32; E32; E44; E52

Suggested Citation

Leroy, Aurélien and Pop, Adrian, Macro-Financial Linkages: The Role of the Institutional Framework (February 1, 2018). Available at SSRN: or

Aurélien Leroy (Contact Author)

LAREFI, University of Bordeaux ( email )

Avenue Léon Duguit
Pessac, Centre 33400

Adrian Pop

University of Nantes ( email )

Chemin de la Censive du Tertre
BP 52231 Cedex 3
Nantes, 44322
+33-(0)2-40-14-16-54 (Phone)
+33-(0)2-40-14-16-50 (Fax)


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