Exploring the Effects of Financial and Fiscal Vulnerabilities on G7 Economies: Evidence from SVAR Analysis

55 Pages Posted: 27 Aug 2014 Last revised: 18 May 2016

See all articles by Georgios Magkonis

Georgios Magkonis

University of Bradford

Andreas Tsopanakis

Cardiff University - Cardiff Business School

Date Written: September 1, 2014

Abstract

We examine the possible interactions of the financial cycle and fiscal position for G7 economies. We employ the innovative aggregate financial and fiscal stress indexes which are able to depict the perplexed nature of modern economies. A SVAR model is developed to investigate the effects of both financial and fiscal stress on key macroeconomic variables. The results, using two different identification methods, reveal that financial and fiscal shocks affect negatively the key macroeconomic variables. Additionally, there is a weak feedback effect from a financial shock to fiscal sector and vice versa.

Keywords: Financial stress; Fiscal stress; Structural VAR; G7 economies

JEL Classification: E44, F47, G01

Suggested Citation

Magkonis, Georgios and Tsopanakis, Andreas, Exploring the Effects of Financial and Fiscal Vulnerabilities on G7 Economies: Evidence from SVAR Analysis (September 1, 2014). Journal of International Financial Markets, Institutions and Money, Vol. 32, 2014, Available at SSRN: https://ssrn.com/abstract=2487092

Georgios Magkonis

University of Bradford

Bradford
Bradford, BD9 4JL
United Kingdom

Andreas Tsopanakis (Contact Author)

Cardiff University - Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

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