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

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  • Magkonis, Georgios
  • Tsopanakis, Andreas

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.

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  • Magkonis, Georgios & Tsopanakis, Andreas, 2014. "Exploring the effects of financial and fiscal vulnerabilities on G7 economies: Evidence from SVAR analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 343-367.
    • Handle: RePEc:eee:intfin:v:32:y:2014:i:c:p:343-367
    DOI: 10.1016/j.intfin.2014.06.010
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    More about this item

    Keywords

    Financial stress; Fiscal stress; Structural VAR; G7 economies;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • G01 - Financial Economics - - General - - - Financial Crises

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