Dynamic interactions between financial cycles, business cycles and macroeconomic imbalances: A panel VAR analysis

Amat Adarov

International Review of Economics & Finance, 2021, vol. 74, issue C, 434-451

Abstract: We use Bayesian and GMM panel VAR frameworks to study interactions between financial and macroeconomic imbalances based on a global sample of 24 countries spanning the period 1998–2012. We find that financial cycles play an important role in shaping macroeconomic imbalances with expansions inducing economic overheating and a downward pressure on public debt-to-GDP ratios. Financial misalignments invoke deeper and faster response of business cycles in bank-based economies and milder, but more persistent in market-based economies, with greater significance for current account and public debt dynamics. High-public debt countries reveal much stronger effects on fiscal stance and output gap trajectories.

Keywords: Financial cycles; Macroeconomic imbalances; Business cycles; Panel VAR; Bayesian VAR (search for similar items in EconPapers)
JEL-codes: E44 F32 F4 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:74:y:2021:i:c:p:434-451

DOI: 10.1016/j.iref.2021.03.021

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