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

Georgios Magkonis; Andreas Tsopanakis

doi:10.1016/j.intfin.2014.06.010

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 language	English
Pages (from-to)	343-367
Number of pages	25
Journal	Journal of International Financial Markets, Institutions and Money
Volume	32
Early online date	8 Jul 2014
DOIs	https://doi.org/10.1016/j.intfin.2014.06.010
Publication status	Published - 1 Sept 2014

Keywords

financial stress
fiscal stress
structural VAR
G7 economies

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10.1016/j.intfin.2014.06.010

MAGKONIS_2014_cright_Exploring the Effects of Financial and Fiscal Vulnerabilities on G7 economiesAccepted author manuscript (Post-print), 718 KBLicence: CC BY-NC-ND

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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.",

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

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Keywords

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