Exploring the effects of financial and fiscal vulnerabilities on G7 economies: evidence from SVAR analysis

Georgios Magkonis, Andreas Tsopanakis

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Abstract

We examine the possible interactions of the financial cycle andfiscal position for G7 economies. We employ the innovative aggre-gate financial and fiscal stress indexes which are able to depict theperplexed nature of modern economies. A SVAR model is devel-oped to investigate the effects of both financial and fiscal stresson key macroeconomic variables. The results, using two differentidentification methods, reveal that financial and fiscal shocks affectnegatively the key macroeconomic variables. Additionally, there isa weak feedback effect from a financial shock to fiscal sector andvice versa.
Original languageEnglish
Pages (from-to)343-367
Number of pages25
JournalJournal of International Financial Markets, Institutions and Money
Volume32
Early online date8 Jul 2014
DOIs
Publication statusPublished - 1 Sep 2014

Keywords

  • financial stress
  • fiscal stress
  • structural VAR
  • G7 economies

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