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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