Dynamic Interactions Between Financial and Macroeconomic Imbalances: A Panel VAR Analysis

Arbeitspapier

We use Bayesian and GMM panel VAR frameworks to study interactions between financial cycles 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, and vice versa. Bank-based economies exhibit a deeper and faster response of business cycles to financial misalignments, while the impact in market-based economies is milder, but more persistent, as well as more significant for current account and public debt dynamics. Financial cycles invoke a particularly strong reaction of current account balances and especially public debt ratios in the euro area.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: wiiw Working Paper ; No. 162

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Current Account Adjustment; Short-term Capital Movements ; International Financial Markets
• Subject: financial cycles ; macroeconomic imbalances ; financial stability ; business cycles ; panel VAR ; Bayesian VAR

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Adarov, Amat
• Event: Veröffentlichung
• (who): The Vienna Institute for International Economic Studies (wiiw)
• (where): Vienna
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/204027
• Last update: 10.03.2025, 11:43 AM CET