A new macro-financial condition index for the euro area

A new time-domain decomposition for weakly stationary or trend stationary processes is introduced. The method is based on trigonometric polynomial modeling, and it is explicitly devised to disentangle medium to long-term and short-term fluctuations in macroeconomic and financial series. A multivaria...

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Bibliographic Details
Published in:Econometrics and statistics 2024-01, Vol.29, p.64-87
Main Author: Morana, Claudio
Format: Article
Language:English
Subjects:
COVID-19 pandemic
dot-com bubble
EU Green Deal
euro area
macroeconomic and financial conditions index
sovereign debt crisis
subprime financial crisis
trend-cycle decomposition
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Summary:A new time-domain decomposition for weakly stationary or trend stationary processes is introduced. The method is based on trigonometric polynomial modeling, and it is explicitly devised to disentangle medium to long-term and short-term fluctuations in macroeconomic and financial series. A multivariate extension involving sequential univariate decompositions and Principal Components Analysis is also provided. Based on this multivariate approach, new composite indexes of macro-financial conditions for the euro area are introduced. The indicators suggest that most of the GDP contraction during the current pandemic has been of short-term, cyclical nature. Moreover, the financial cycle might have currently achieved a peak area. Hence, the risk of further, deeper disruptions is high, particularly as a new sovereign/corporate debt crisis were not eventually avoided.
ISSN:2452-3062
2452-3062
DOI:10.1016/j.ecosta.2021.09.005