Cross-border workers and financial instability: a frequency domain causality analysis applied to the Luxembourg financial centre

Abstract

ABSTRACTThis paper aims to examine the causal relationship between workers (cross-border and resident workers) and financial instability in the Luxembourg financial centre, using a Granger causality test in the frequency domain. The evidence shows that cross-border workers are more sensitive to financial shocks than resident workers. In addition to the causal relationship there is a ‘nonlinear’ reaction: one smooth in the short term and a second more structural one in the long term.