Macro-financial spillovers

• Published in: Journal of international money and finance 2023-05, Vol.133, p.102824, Article 102824
• Main Authors: Cotter, John, Hallam, Mark, Yilmaz, Kamil
• Format: Article
• Language: English
• Subjects: Connectedness; Forecasting; Macro-financial; Mixed-frequency; Spillovers
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2023.102824

•We analyse spillovers between the real and financial sides of the US and other advanced economies.•Our approach allows for different sampling frequencies for financial and macroeconomic data.•We find financial markets are typically net shock transmittersto the real side of the economy.•Our macro-financial spillover measures have significant predictive ability for future macroeconomic conditions.•Our measures' predictive ability frequently exceeds that of financial systemic risk measures. We analyse spillovers between the real and financial sides of the US economy, and between those in the US and other advanced economies. The approach developed allows for differences in sampling frequency between financial and macroeconomic data. We find that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions. This result holds both for domestic US macro-financial spillovers, and also those between the US and other advanced economies. Our macro-financial spillover measures are found to have significant predictive ability for future macroeconomic conditions in both in-sample and out-of-sample forecasting environments. Furthermore, the predictive ability frequently of our macro-financial measures frequently exceeds that of purely financial systemic risk measures previously employed in the literature for the same task.