Fiscal developments and financial stress: a threshold VAR analysis
Antonio Afonso,
Michal Slavík and
Jaromir Baxa
No 1319, Working Paper Series from European Central Bank
Abstract:
We use a threshold VAR analysis to study whether the effects of fiscal policy on economic activity differ depending on financial market conditions. In particular, we investigate the possibility of a non-linear propagation of fiscal developments according to different financial market stress regimes. More specifically we employ a quarterly dataset, for the U.S., the U.K., Germany and Italy, for the period 1980:4-2009:4, encompassing macro, fiscal and financial variables. The results show that (i) the use of a nonlinear framework with regime switches is corroborated by nonlinearity tests; (ii) the responses of economic growth to a fiscal shock are mostly positive in both financial stress regimes; (iii) financial stress has a negative effect on output growth and worsens the fiscal position; (iv) the nonlinearity in the response of output growth to a fiscal shock is mainly associated with different behaviour across regimes; (v) the size of the fiscal multipliers is higher than average in the last crisis. JEL Classification: E62, G15, H60
Keywords: financial markets; fiscal policy; threshold VAR (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-cba and nep-eec
Note: 981968
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)
Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1319.pdf (application/pdf)
Related works:
Journal Article: Fiscal developments and financial stress: a threshold VAR analysis (2018) 
Working Paper: Fiscal developments and financial stress: a threshold VAR analysis (2011) 
Working Paper: Fiscal developments and financial stress: a threshold VAR analysis (2011) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20111319
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().