Financial distress and real economic activity in Lithuania: a Granger causality test based on MF-VAR
In this study we, first, extend the monthly Financial Stress Index (FSI) for Lithuania computed by ECB (see ) to a high-frequency (daily) horizon and we also include the banking sector among its constituents (beyond bond, equity, foreign exchange markets). The empirical results suggest no evidence of Granger causality between the monthly FSI index (developed by ) and monthly industrial production growth. On the contrary, a Granger causality test applied to a VAR using mixed frequency data characterised by a large mismatch in sampling frequencies of the series involved (i.e. daily vs monthly), suggests that the daily Lithuanian FSI has a predictive power for monthly Lithuanian IP growth for the full sample period (October 2001 – December 2016), but not vice versa. Full sample results are confirmed by rolling-window analysis.
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