Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment
Martin Hodula and
Pfeifer Lukáš ()
Additional contact information
Pfeifer Lukáš: University of Economics in Prague, Department of Monetary Theory and Policy, 1938/4 W.Churchill Sq., 130 67Prague3, Czech Republic
Review of Economic Perspectives, 2018, vol. 18, issue 3, 195-224
In this paper, we shed some light on the mutual interplay of economic policy and the financial stability objective. We contribute to the intense discussion regarding the influence of fiscal and monetary policy measures on the real economy and the financial sector. We apply a factor-augmented vector autoregression model to Czech macroeconomic data and model the policy interactions in a data-rich environment. Our findings can be summarized in three main points: First, loose economic policies (especially monetary policy) may translate into a more stable financial sector, albeit only in the short term. In the medium term, an expansion-focused mix of monetary and fiscal policy may contribute to systemic risk accumulation, by substantially increasing credit dynamics and house prices. Second, we find that fiscal and monetary policy impact the financial sector in differential magnitudes and time horizons. And third, we confirm that systemic risk materialization might cause significant output losses and deterioration of public finances, trigger deflationary pressures, and increase the debt service ratio. Overall, our findings provide some empirical support for countercyclical fiscal and monetary policies.
Keywords: financial stability; fiscal policy; macroprudential policy; monetary policy; interactions; policy mix (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
https://www.degruyter.com/view/j/revecp.2018.18.is ... -0012.xml?format=INT (text/html)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:vrs:reoecp:v:18:y:2018:i:3:p:195-224:n:2
Access Statistics for this article
Review of Economic Perspectives is currently edited by Antonín Slaný
More articles in Review of Economic Perspectives from Sciendo
Bibliographic data for series maintained by Peter Golla ().