Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment
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...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Sciendo
2018-09-01
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| Series: | Review of Economic Perspectives |
| Subjects: | |
| Online Access: | https://doi.org/10.2478/revecp-2018-0012 |
| _version_ | 1818390782888902656 |
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| author | Hodula Martin Pfeifer Lukáš |
| author_facet | Hodula Martin Pfeifer Lukáš |
| author_sort | Hodula Martin |
| collection | DOAJ |
| description | 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. |
| first_indexed | 2024-12-14T05:03:06Z |
| format | Article |
| id | doaj.art-397f23576dc146b08022493d188a32ec |
| institution | Directory Open Access Journal |
| issn | 1804-1663 |
| language | English |
| last_indexed | 2024-12-14T05:03:06Z |
| publishDate | 2018-09-01 |
| publisher | Sciendo |
| record_format | Article |
| series | Review of Economic Perspectives |
| spelling | doaj.art-397f23576dc146b08022493d188a32ec2022-12-21T23:16:11ZengSciendoReview of Economic Perspectives1804-16632018-09-0118319522410.2478/revecp-2018-0012revecp-2018-0012Fiscal-Monetary-Financial Stability Interactions in a Data-Rich EnvironmentHodula Martin0Pfeifer Lukáš1VŠB-Technical University of Ostrava, Economic Faculty, Department of Economics, 15/217217. Listopadu St., 708 33Ostrava, Czech RepublicUniversity of Economics in Prague, Department of Monetary Theory and Policy, 1938/4 W.Churchill Sq., 130 67Prague3, Czech RepublicIn 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.https://doi.org/10.2478/revecp-2018-0012financial stabilityfiscal policymacroprudential policymonetary policyinteractionspolicy mix |
| spellingShingle | Hodula Martin Pfeifer Lukáš Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment Review of Economic Perspectives financial stability fiscal policy macroprudential policy monetary policy interactions policy mix |
| title | Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment |
| title_full | Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment |
| title_fullStr | Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment |
| title_full_unstemmed | Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment |
| title_short | Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment |
| title_sort | fiscal monetary financial stability interactions in a data rich environment |
| topic | financial stability fiscal policy macroprudential policy monetary policy interactions policy mix |
| url | https://doi.org/10.2478/revecp-2018-0012 |
| work_keys_str_mv | AT hodulamartin fiscalmonetaryfinancialstabilityinteractionsinadatarichenvironment AT pfeiferlukas fiscalmonetaryfinancialstabilityinteractionsinadatarichenvironment |