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

ABSTRACT

This 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.

KEYWORDS:

• Frequency domain
• Granger causality
• Cross-border workers
• Financial shocks

JEL CLASSIFICATION:

• G10
• J61

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ They impose linear restrictions on the autoregressive parameters in a vector autoregression (VAR) model.

² Like the Bureau of Labor Statistics (for example), we removed the influences of predictable seasonal patterns.

³ The STATEC definition of the variable C.B. workers is ‘non-residents working on national territory’.

⁴ The detailed results for the stationarity tests are available upon request.

⁵ We get the same conclusions for resident workers.

⁶ We also get almost similar results using CAC40 and DAX variables.

⁷ January 2010 marks the end of the decline of cross-border workers (see Figure 1).

⁸ The conventional time-domain causality test presents the same conclusions.

Additional information

Funding

This work was supported by the Maison des Sciences de l’Homme Lorraine.