Macro-Financial Linkages: The Role of Liquidity Dependence

34 Pages Posted: 2 May 2018

Date Written: April 2018

Abstract

We estimate a panel Bayesian vector autoregression model for a cross-section of seven advanced European economies and produce out-of-sample forecasts of GDP conditionally on observed developments of interest rates and credit. We show that, by using a smooth transition version of the model and allowing the parameters to vary across economies conditionally on their liquidity dependence (i.e. dependence on the availability of funding from external sources), it is possible to improve the accuracy of the forecasts. We conclude that the degree of liquidity dependence is likely to be among the important predictors of heterogeneity in macro-financial linkages across countries.

Keywords: liquidity dependence, macro-financial linkages, Smooth Transition Bayesian VAR

JEL Classification: G2, O16, C32

Suggested Citation

Ponomarenko, Alexey A. and Rozhkova, Anna and Seleznev, Sergei, Macro-Financial Linkages: The Role of Liquidity Dependence (April 2018). BIS Working Paper No. 716, Available at SSRN: https://ssrn.com/abstract=3170677

Alexey A. Ponomarenko (Contact Author)

Central Bank of Russia ( email )

12 Neglinnaya Street
Moscow, 107016
Russia

HOME PAGE: http://http.//www.cbr.ru

Anna Rozhkova

Bank of Russia ( email )

12 Neglinnaya Street
Moscow, 107016
Russia

Sergei Seleznev

Bank of Russia ( email )

12 Neglinnaya Street
Moscow, 107016
Russia

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