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Trust crisis in the financial sector and macroeconomic stability: a structural equation modelling approach

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  • Maryna Brychko
  • Yuriy Bilan
  • Serhiy Lyeonov
  • Grzegorz Mentel

Abstract

Although the growing body of literature that recognises a destabilising role of the trust crisis in the macroeconomic stability, the understanding of mediational pathways remains limited. The current paper fills the gap by contributing to the existing literature by examining closely the mediating effect of the trust crisis in the financial sector on the indicators of macroeconomic stability due to the anticipated impact of the financial intermediation development and the monetary policy transmission mechanism, as well as their combinatorial impact. A method of structural equation modelling was used to analyse the input data. It has been empirically confirmed that exacerbation of the trust crisis in the financial sector without the use of regulatory measures is detrimental to macroeconomic stability. The results of the mediation analysis show that transmission channels of the monetary policy mechanism and developed financial sector mitigate the harmful effects of deepening the trust crisis in the financial sector and lead to an increase in macroeconomic stability indicators. From a practical perspective, the findings revealed that interest, credit, and currency channels of the monetary policy transmission mechanism could be used to cope with the erosion of the trust crisis in the financial sector to macroeconomic stability.

Suggested Citation

  • Maryna Brychko & Yuriy Bilan & Serhiy Lyeonov & Grzegorz Mentel, 2021. "Trust crisis in the financial sector and macroeconomic stability: a structural equation modelling approach," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 34(1), pages 828-855, January.
    • Handle: RePEc:taf:reroxx:v:34:y:2021:i:1:p:828-855
    DOI: 10.1080/1331677X.2020.1804970
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    Cited by:

    1. Vu Manh Hoai Nguyen & Tin Huu Ho & Luan Huynh Nguyen & An Thi Ha Pham, 2023. "The Impact of Trade Openness on Economic Stability in Asian Countries," Sustainability, MDPI, vol. 15(15), pages 1-20, July.
    2. Aleksandra Ostrowska & Paulina Pukin-Sowul, 2023. "Macroeconomic Stability of Central and Eastern European Countries in the Context of Monetary Integration," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 390-408.

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