Financial shocks and economic activity:A high frequency approach

Miescu, Mirela and Mumtaz, Haroon (2020) Financial shocks and economic activity:A high frequency approach. Working Paper. Lancaster University, Department of Economics, Lancaster.

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We investigate the effects of US financial shocks on economic activity in a structural mixed frequency VAR model that incorporates daily and lower frequency 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.

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14 Aug 2020 10:05
Last Modified:
22 Nov 2022 15:24