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
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 language | English |
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Pages (from-to) | 73-93 |
Number of pages | 21 |
Journal | Economic Issues |
Volume | 19 |
Issue number | 1 |
Publication status | Published - 1 Mar 2014 |
Externally published | Yes |