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Dynamic interactions between financial cycles, business cycles and macroeconomic imbalances: A panel VAR analysis

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  • Adarov, Amat
Abstract
We use Bayesian and GMM panel VAR frameworks to study interactions between financial 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. Financial misalignments invoke deeper and faster response of business cycles in bank-based economies and milder, but more persistent in market-based economies, with greater significance for current account and public debt dynamics. High-public debt countries reveal much stronger effects on fiscal stance and output gap trajectories.

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  • Adarov, Amat, 2021. "Dynamic interactions between financial cycles, business cycles and macroeconomic imbalances: A panel VAR analysis," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 434-451.
    • Handle: RePEc:eee:reveco:v:74:y:2021:i:c:p:434-451
    DOI: 10.1016/j.iref.2021.03.021
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    6. Tianbao Zhou & Zhixin Liu & Yingying Xu, 2024. "Characterizing Public Debt Cycles: Don't Ignore the Impact of Financial Cycles," Papers 2404.17412, arXiv.org.

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    More about this item

    Keywords

    Financial cycles; Macroeconomic imbalances; Business cycles; Panel VAR; Bayesian VAR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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