Hostname: page-component-586b7cd67f-tf8b9 Total loading time: 0 Render date: 2024-11-28T14:22:23.816Z Has data issue: false hasContentIssue false
  • English
  • Français

STRUCTURAL DIFFERENCES IN THE EUROZONE: MEASURING FINANCIAL STABILITY BY FCI

Published online by Cambridge University Press:  07 June 2018

Matteo Foglia ,
Alfredo Cartone  and
Cristiana Fiorelli
Matteo Foglia*
Affiliation:
“G.d’Annunzio” University of Chieti-Pescara
Alfredo Cartone
Affiliation:
“G.d’Annunzio” University of Chieti-Pescara
Cristiana Fiorelli
Affiliation:
University of Teramo
*
Address correspondence to: Matteo Foglia, Department of Economics, “G.d’Annunzio” University of Pescara, Viale Pindaro 42, Pescara, Italy; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

In this paper, we apply two novel methodological approaches, Tucker three-way principal component analysis and locally weighted principal component analysis, to construct financial conditions index for Eurozone countries. The aim is to point out how real and financial macroeconomic variables affect the credit channel and which variables are more relevant in each occasion, highlighting structural differences within the Eurozone. The results suggest that the Eurozone is involved into a low easing pattern, which is difficult to reverse and affects considerably the financial conditions, surrounding the hypothesis that this pattern has been worsened by structural differences between the European Monetary Union (EMU) countries. Empirical evidence shows that European Central Bank (ECB) policy has managed to cool financial tensions and has made financial conditions homogeneous, but it has not been able to restore them at a precrisis level.

Keywords

FCIEurozone CrisisThree-WayLWPCA
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Special Issue 1: Macroeconomic Modeling and Empirical Evidence in the Wake of the Crisis , January 2020 , pp. 69 - 92
Copyright
© Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We would like to thank Roberto Benedetti, Eliana Angelini, and Valentina Meliciani for helpful comments on an earlier draft of the paper. Furthermore, we wish to thank participants of the 8th International Conference “Economics, Economics Policies and Sustainable Growth in the Wake of the Crisis,” University of Ancona, September 8–10 (2016), for very helpful suggestions. None of them are responsible for any errors in this paper.

References

Angelopoulou, Elina, Balfoussia, Hiona, and Gibson, Heather D. (2014) Building a financial condition index for the euro area and select euro area countries. What does it tell us about crisis? Economic Modelling 38 (C), 392–403.CrossRefGoogle Scholar
Beaton, Kinmberly, Lalonde, René, and Lu, Corinne (2009) A Financial Conditions Index for the United States. Discussion paper 2009–11, Bank of Canada, Ottawa.Google Scholar
Benchimo, Jonathana and Fourans, André (2016) Money and monetary policy in the Eurozone: An empirical analysis during crises. Macroeconomic Dynamics 21 (3), 677–707.CrossRefGoogle Scholar
Blot, Christophe, Creel, Jérome, Hubert, Paul, and Labondance, Fabien (2016) The Impact of ECB Policies on Euro Area Investment. Sciences Po.Google Scholar
Born, Benjamin, Ehrmann, Michael, and Fratzscher, Marcel (2012) Macroprudential policy and central bank communication. International Finance 15 (2), 179–203.CrossRefGoogle Scholar
Brave, Scott and Butters, R. Andrew (2011) Monitoring Financial Stability: A Financial Conditions Index Approach. Economic perspectives, first quarter, Federal Reserve Bank of Chicago, 22–43.Google Scholar
Carlson, Mark, Lewis, Kurt, and Nelson, William (2014) Using policy intervention to identify financial stress. International Journal of Finance & Economics 19 (1), 59–72.CrossRefGoogle Scholar
COM (2014) A reformed financial sector for Europe. Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, 279 final.Google Scholar
Dudley, William and Hatzius, Jan (2000) The Goldman Sachs Financial Conditions Index: The Right Tool for a New Monetary Policy Regime. Global economics paper 44.Google Scholar
ECB (2009) A Global Index of Financial Turbulence. Financial stability review, December, 21–23.Google Scholar
ECB (2012) Heterogeneity in euro area financial conditions and policy implications. Monthly Bulletin August, 63–75.Google Scholar
Eichengreen, Barry (2012) Europe’s Vicious Spirals. Project Syndicate, January, 11.Google Scholar
Eickmeier, Sandra and Hofmann, Boris (2013) Monetary policy, housing booms, and financial (im)balances. Macroeconomic Dynamics 17 (4), 830–860.CrossRefGoogle Scholar
Engler, Philipp, Ganelli, Giovanni, Tervala, Juha, and Voigts, Simon (2017) Fiscal devaluation in a monetary union. IMF Economic Review 65 (2), 241–272.CrossRefGoogle Scholar
English, William, Tsatsaronis, Kostas, and Zoli, Edda (2005) Assessing the predictive power of measures of financial conditions for macroeconomic variables. BIS Papers 22, 228–252.Google Scholar
Erdem, Magdalena and Tsatsaronis, Kostas (2013) Financial conditions and economic activity: A statistical approach. International Banking and Financial Market Developments 3, 37.Google Scholar
Fotheringham, A. Stewart, Brunsdon, Chris, and Charlton, Martin (2002) Geographically Weighted Regression – The Analysis of Spatially Varying Relationships. Chichester, UK: Wiley.Google Scholar
Gauthier, Céline, Graham, Christopher, and Liu, Ying (2004) Financial Conditions Indexes for Canada. Bank of Canada working paper 22.Google Scholar
Gilchrist, Simon, Yankov, Vladimir, and Zakrajsek, Egon (2009) Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets. Journal of Monetary Economics 56 (4), 471–493.CrossRefGoogle Scholar
Giordani, Paolo, Kiers, Henk AL, and Del Ferraro, Maria Antonietta (2014) Three-way component analysis using the R package ThreeWay. Journal of Statistical Software 57 (7), 1–23.CrossRefGoogle Scholar
Gollini, Isabella, Binbin, Lu, Martin, Charlton, Christopher, Brunsdon, and Paul, Harris (2015) GWmodel: An R package for exploring spatial heterogeneity using geographically weighted models. Journal of Statistical Software 63, 17.CrossRefGoogle Scholar
Harris, Paul, Brunsdon, Chris, and Charlton, Martin (2011) Geographically weighted principal components analysis. International Journal of Geographical Information Science 25, 1717–1736.CrossRefGoogle Scholar
Harris, Paul, Annemarie, Clarke, Steve, Juggins, Chris, Brunsdon, and Martin, Charlton (2015) Enhancements to a geographically weighted principal component analysis in the context of an application to an environmental data set. Geographical Analysis 47, 146–172.CrossRefGoogle Scholar
Hatzius, Jan, Hooper, Perter, Mishkin, Frederic, Schoenholtz, Kermit, and Watson, Mark (2010) Financial Conditions Indexes: A Fresh Look After the Financial Crisis. NBER working paper 16150.Google Scholar
Hollo, Daniel, Kremer, Manfred, and Lo Duca, Marco (2011) Ciss-A Composite Indicator of Systemic Stress in the Financial System. ECB working paper series 1426.Google Scholar
Jolliffe, I.T. (2002) Principal Component Analysis. New York, NY: Springer.Google Scholar
Kiers, Henk A.L. (2000) Towards a standardized notation and terminology in multiway analysis. Journal of Chemometrics 14, 105–122.3.0.CO;2-I>CrossRefGoogle Scholar
Kroonenberg, Peter M. (1983) Three-Mode Principal Component Analysis: Theory and Applications. Leiden: DSWO.Google Scholar
Kroonenberg, Peter M. (2008) Applied Multiway Data Analysis. Hoboken: John Wiley and Sons.CrossRefGoogle Scholar
Matheson, Troy D. (2012) Financial conditions indexes for the United States and euro area. Economic Letters 115 (3), 441–446.CrossRefGoogle Scholar
Mayes, David G. and Virén, Matti (2002) Financial conditions indexes. International Economics 55 (4), 521–550.Google Scholar
Osorio, Carolina, Unsal, Feliz, and Pongsaparn, Runchana (2011) A Quantitative Assessment of Financial Conditions in Asia. IMF working paper 110–170.Google Scholar
Darracq Paries, Matthieu, Maurin, Laurent, and Moccero, Diego (2014) Financial condition index and credit supply shock for the euro area. ECB working paper 1644.Google Scholar
Postiglione, Paolo M. Andreano, Simona, and Benedetti, Roberto (2013) Using constrained optimization for the identification of convergence clubs. Computational Economics 42, 151–174.CrossRefGoogle Scholar
Rosenberg, Michael (2009). Financial Conditions Watch. Bloomberg.Google Scholar
Schinasi, Garry J. (2004). Defining Financial Stability. IMF working paper 128–190.CrossRefGoogle Scholar
Shambaugh, Jay C. (2012) The euros three crises. Brookings Papers on Economic Activity 43, 157–231.CrossRefGoogle Scholar
Stiglitz, Joseph E. (2010). The Stiglitz report. Reforming the international monetary and financial systems in the wake of the global crisis. UN Commission of Financial Experts, United Nations.Google Scholar
Stock, James H., and Watson, Mark W. (2016) Dynamic factor models, factor-augmented vector autoregressions, and structural vector autoregressions in macroeconomics. Handbook of Macroeconomics 2, 425–525.Google Scholar
Tucker, Ledyard R. (1966) Some mathematical notes on three-mode factor analysis. Psychometrika 31 (3), 279–311.CrossRefGoogle ScholarPubMed
Van Roye, Bjorn (2011) Financial Stress and Economic Activity in Germany and the Euro Area. Kiel Institute for the World Economy working paper 1743.Google Scholar
Wacker, Kostantin, Lodge, David, and Nicoletti, Giulio (2014) Measuring Financial Conditions in Major Non-Euro Area Economies. Working paper 1743, European Central Bank.Google Scholar