Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/194193
Authors: 
Hodula, Martin
Pfeifer, Lukáš
Year of Publication: 
2018
Citation: 
[Journal:] Review of Economic Perspectives [ISSN:] 1804-1663 [Volume:] 18 [Year:] 2018 [Issue:] 3 [Pages:] 195-224
Abstract: 
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.
Subjects: 
financial stability
fiscal policy
macroprudential policy
monetary policy
interactions
policy mix
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/
Document Type: 
Article
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