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

Magkonis, G; Tsopanakis, A

Abstract

We examine the possible interactions of the financial cycle and fiscal position for G7 economies. We employ the innovative aggregate financial and fiscal stress indexes which are able to depict the perplexed nature of modern economies. A SVAR model is developed to investigate the effects of both financial and fiscal stress on key macroeconomic variables. The results, using two different identification methods, reveal that financial and fiscal shocks affect negatively the key macroeconomic variables. Additionally, there is a weak feedback effect from a financial shock to fiscal sector and vice versa.

• Journal Article Type: Article
• Acceptance Date: Jun 28, 2014
• Online Publication Date: Jul 8, 2014
• Publication Date: Sep 1, 2014
• Deposit Date: Sep 9, 2014
• Publicly Available Date: Nov 1, 2016
• Journal: Journal of International Financial Markets, Institutions and Money
• Print ISSN: 1042-4431
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 32
• Pages: 343-367
• DOI: https://doi.org/10.1016/j.intfin.2014.06.010
• Publisher URL: http://dx.doi.org/10.1016/j.intfin.2014.06.010
• Related Public URLs: http://www.sciencedirect.com/science/journal/10424431