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

Anca Mihaela Copaciu () and Alexandra Horobet
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Anca Mihaela Copaciu: Bucharest University of Economic Studies. Coressponding author
Alexandra Horobet: Bucharest University of Economic Studies.

Journal for Economic Forecasting, 2022, issue 2, 29-43

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.

Keywords: systemic financial stress; Threshold Bayesian VAR; monetary policy; exchange rate; output (search for similar items in EconPapers)
JEL-codes: C11 E44 E52 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2022:i:2:p:29-43

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