| By: |
Helena Chuliá (Riskcenter- IREA and Department of Econometrics, University of Barcelona, Av.Diagonal, 690, 08034. Barcelona, Spain.);
Ignacio Garrón (University of Barcelona, Av.Diagonal, 690, 08034. Barcelona, Spain.);
Jorge M. Uribe (Riskcenter, University of Barcelona, Faculty of Economics and Business, Open University of Catalonia, Barcelona, Spain.) |
| Abstract: |
We study the international propagation of financial conditions from the United
States to global financial markets. The impact is highly heterogeneous
alongside the quantiles of the distribution of the two major funding sources,
credit and equity. Indeed, it is greater on the lower quantiles, which means
that analogous to vulnerable growth episodes, examined by the past literature,
there exist as well vulnerable funding periods of a global scale, originated
from financial weakness in the US. These episodes are related to downside risk
in terms of credit creation and firms’ market value around the world. Our
estimates differentiate between first and second moment (i.e. uncertainty)
shocks to financial conditions. This distinction proves to be relevant as it
uncovers a complex propagation of shocks via different economic channels. On
the one hand, credit growth largely responds to first moment shocks of US
financial conditions four quarters after their occurrence, which is consistent
with a credit view explanation of the transmission. On the other hand, stock
markets react more sensitively and rapidly (mainly within a quarter) to second
moment shocks, which can be theoretically associated with a portfolio channel
underlying the shocks spread. We also document a heterogeneous impact across
countries. In the case of credit growth this heterogeneity is better explained
by the size or depth of the markets, while in the case of stock markets, the
explanation is rooted on the strength of the financial connectedness with the
US. |
| Keywords: |
Financial conditions, Financial uncertainty, Quantile regression, Credit growth, Stock market. JEL classification: E44, F34, F37, F44, G15. |
| Date: |
2021–03 |
| URL: |
http://d.repec.org/n?u=RePEc:ira:wpaper:202106&r=all |