Aspects of Macroeconomic Policy Combinations and Their Effects on Financial Markets

Muhammad Ali Nasir, Alaa M. Soliman

Research output: Contribution to journalArticle

Abstract

This paper analyses the implications of macroeconomic policy interactions for financial stability, proxied by financial assets prices (equity and bonds). The empirical analysis applies a Vector Autoregressive (VAR) model and our findings suggest that an accommodating monetary, and disciplined fiscal, stance has been optimal for both stock and bond markets. There is also ample evidence of interdependence between policies, as an expansionary fiscal policy could persuade the monetary authorities to adopt an accommodating stance, whereas a contractionary monetary policy leads fiscal policy towards consolidation. The interrelation between monetary and fiscal policy necessitates coordination between them for the sake of financial stability.
Original languageEnglish
Pages (from-to)95-118
Number of pages24
JournalEconomic Issues
Volume19
Issue number1
Publication statusPublished - 1 Mar 2014
Externally publishedYes

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