Abstract
The paper examines time-varying linkages between the financial and macroeconomic sectors across 13 developed countries. To do so, the paper studies whether the financial sector is an important source of shock to the macroeconomic sectors across countries. The paper finds evidence of time-varying impacts of the financial shocks on the macroeconomic sectors across countries. There are evidence of time variation in both the transmission and the size of the shocks. Different financial shocks play important roles in different financial shocks. For instance, The US house-price shock plays an important role in the Global Financial Crisis. The model also captures the large degree of heterogeneity in the effect of a financial shock across countries.
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