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

Georgios Magkonis and Andreas Tsopanakis

Journal of International Financial Markets, Institutions and Money, 2014, vol. 32, issue C, 343-367

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.

Keywords: Financial stress; Fiscal stress; Structural VAR; G7 economies (search for similar items in EconPapers)
JEL-codes: E44 F47 G01 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:32:y:2014:i:c:p:343-367

DOI: 10.1016/j.intfin.2014.06.010

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