Aggregate production and macroeconomic dynamics: Evidence from European economies

Abstract

Industrial production index returns, the stock market and sovereign bond yields are simultaneously examined for selected European countries from 2000 to 2018. In general, we document absence of long-run dynamics (linkages) across countries' production index returns, which suggests that no single country's production index had surfaced as the leader among the other industries within Europe. VAR and Granger causality analyses indicate that industrial productions, bond yields and stock markets appear to have moved independently of each other within each country. We identify only partial asymmetries following shocks of equal and unequal magnitude and nature for some magnitudes and for some countries. Finally, examining these magnitudes' linkages during the 2007 global financial crisis and during bailout periods, we did not detect any sharp reactions to shocks, which implies that they were not statistically affected by such events.