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Spillovers in the Presence of Financial Stress – An Application to Romania

Author

Listed:
  • Anca Mihaela COPACIU

    (Bucharest University of Economic Studies. Coressponding author)

  • Alexandra HOROBET

    (Bucharest University of Economic Studies.)

Abstract

The study investigates the behavior of macroeconomic variables for Romania using a Threshold Bayesian VAR model with the Country-Level Index of Financial Stress as a threshold variable. Over the 2002-2021 period, a number of ten periods of high financial stress are identified, with an average duration of 3.5 months related to either domestic, externally driven or global events. No significant assymmetries are found across regimes. However, the impact of shocks is larger, but less persistent, under the high stress regime. Interest rates should be used to stabilize output in recessions and inflation during normal times. Negative shocks on financial conditions lead to higher, less persistent, fall in output during high stress periods and increases in inflation with a resulting tradeoff in stabilizing them.

Suggested Citation

  • Anca Mihaela COPACIU & Alexandra HOROBET, 2022. "Spillovers in the Presence of Financial Stress – An Application to Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 29-43, April.
    • Handle: RePEc:rjr:romjef:v::y:2022:i:2:p:29-43
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    References listed on IDEAS

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    More about this item

    Keywords

    systemic financial stress; Threshold Bayesian VAR; monetary policy; exchange rate; output;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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