Understanding the dynamics of financial and economic crises: a comprehensive analysis

Mekki Hamdaoui, Abderraouf Mtiraoui (), Zohra Aroussi and Mounir Smida
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Abderraouf Mtiraoui: MOFID-Université de Sousse

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Abstract: this paper aims to assess the nature of the link between financial and economic crises. to do this, we develop a continuous measure for crisis probability. the methodology employed distinguishes short-from long-term relationships, enhancing the analysis's depth and fortifying the results for autoregressive processes. the study addresses endogeneity and potential simultaneity between different crises using a sample of 49 developed and emerging countries spanning 1984-2016. the empirical investigation incorporates a simultaneous equation, Bayesian Model averaging (BMa) approach, a Panel autoregressive Vector (P-VecM), an autoregressive Distributed lag (arDl) technique, as well as Fully Modified ols (FMols) and Dynamic ols (Dols) methods. Findings indicate that while all crisis types may stem from unfavorable conditions, there exists a time lag in triggering and duration. specifically, economic crises tend to be more persistent and are typically preceded by financial crises. Granger-causality test results support a robust bidirectional causality between financial and real difficulties, with the financial sector influencing the real economy more significantly. Moreover, the study reveals that the impact of economic volatility on financial stability is transient and lacks long-term significance. conversely, the effect of a financial crisis on the real economy is enduring and remains significant in the long run. additionally, exchange market volatility emerges as a crucial determinant for both financial and economic crises.IMPACT STATEMENT our interest in this paper is to focus in the interdependency between economic and financial spheres. in particular, we aim to participate in the construction of a supervisory platform for politicians and policymakers by sequencing the triggering order of any fragility both in financial or real sectors and specifying potential transmission channels. the idea is to increase preventive actions to reduce likelihood of systemic crises by quickly acting to separate the two spheres and reduce possible contagion.

Keywords: Financial and economic crises Bayesian model averaging Markov switching approach P-VecM arDl FMols and Dols; Financial and economic crises; Bayesian model averaging; Markov switching approach; P-VecM; arDl; FMols and Dols (search for similar items in EconPapers)
Date: 2025-02-07
New Economics Papers: this item is included in nep-fdg and nep-inv
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Published in Cogent Social Sciences, 2025, 11, ⟨10.1080/23311886.2025.2454740⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04950052

DOI: 10.1080/23311886.2025.2454740

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