Prague Economic Papers 2015, 24(5):516-537 | DOI: 10.18267/j.pep.513

Financial Risk and Real Variables: Evidence Based on a SVAR Analysis of the Czech Economy

Vít Pošta1, Zdeněk Pikhart2
1 Ministry of Finance, Department of Microeconomics, University of Economics, Prague (vit.posta@vse.cz).
2 Ministry of Finance, Department of Economic and Social Policy, University of Economics, Prague (zdenek.pikhart@vse.cz).

Recent financial crisis has brought to attention the issues of interactions between financial markets and real economy. This paper presents an analysis of the possible explicit effects of various measures of financial markets' risk on real economy based on impulse - response functions within structural vector autoregressive models. As discussed in the paper the riskiness of financial markets is closely related to the more traditional mechanisms based on financial accelerator approach, however, although the issue of financial risk is closely tied with the financial accelerator model, broader effects outside this model may be considered as well. The analysis is carried out for the Czech Republic. The estimates of the responses in the impulse-response analyses typically correspond with the hypothesized effects of the financial risk factors on the real variables; also the interrelations between some of the financial risk factors are obvious. We conclude that increased financial risk seems to be an amplifying element rather than the key driver in the interactions between financial and real economy.

Keywords: SVAR, financial markets' risk, financial crisis, financial accelerator, Czech economy, business fluctuations
JEL classification: E32, E44, G01

Published: January 1, 2015  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Pošta, V., & Pikhart, Z. (2015). Financial Risk and Real Variables: Evidence Based on a SVAR Analysis of the Czech Economy. Prague Economic Papers24(5), 516-537. doi: 10.18267/j.pep.513
Download citation

References

  1. Aarle, B., Garretsen, H., Gobbin, N. (2003), "Monetary and Fiscal Policy Transmission in the Euro Area: Evidence from a Structural VAR Analysis." Journal of Economics and Business, Vol. 55, No. 5-6, pp. 609-638. Go to original source...
  2. Ahtik, M. (2012), "Bank Lending Channel in Slovenia: Panel Data Analysis." Prague Economic Papers, Vol. 21, No. 1, pp. 50-68. Go to original source...
  3. Beneš, J., Ötker-Robe, I., Vávra, D. (2009), "Modeling with Macro-Financial Linkages: Credit and Policy Shocks in Emerging Markets." IMF Working Paper WP/09/123. Go to original source...
  4. Bernanke, B. S., Gertler, M. (1995), "Inside the Black Box: The Credit Channel of Monetary Policy Transmission." Journal of Economic Perspectives, Vol. 9, No. 4, pp. 27-48. Go to original source...
  5. Bernanke, B. S., Blinder, A. S. (1988), "Credit, Money, and Aggregate Demand." American Economic Review, Vol. 78, No. 2, pp. 435-439. Go to original source...
  6. Bernanke, B. S., Gertler, M., Gilchrist, S. (1996), "The Financial Accelerator and the Flight to Quality." Review of Economics and Statistics, Vol. 78, No. 1, pp. 1-15. Go to original source...
  7. Bernanke, B. S., Gertler, M., Gilchrist, S. (1999), "The Financial Accelerator in a Quantitative Business Cycle Framework." In: Taylor JB and Woodford M (eds.) Handbook of Macroeconomics 1C: 1341-1393. Elsevier, 1st ed. Go to original source...
  8. Bijlsma, M., Klomp, J., Duineveld, S. (2010), Systemic Risk in the Financial Sector: A Review and Synthesis, CPB Document 210.
  9. Black F. (1976), "Studies of Stock Price Volatility Changes." American Statistical Association, Proceedings of the 1976 Meetings of the Business and Economics Statistics Section: pp. 177-181.
  10. Brunnermeier, M. K., Pedersen, L. H. (2009), "Market Liquidity and Funding Liquidity." Review of Financial Studies, Vol. 22, No. 6, pp. 2201-2238. Go to original source...
  11. Caballero, R. J. (1991), "On the Sign of the Investment-Uncertainty Relationship." American Economic Review, Vol. 81, No. 1, pp. 279-288.
  12. Caballero, R. J. (1997), "Aggregate Investment." NBER Working Paper Series WP No. 6264. Go to original source...
  13. Caballero, R. J., Krishnamurthy, A. (2003), "Excessive Dollar Debt: Financial Development and Underinsurance." Journal of Finance Vol. 58, No. 2, pp. 867-893. Go to original source...
  14. Chari, V., Kehoe, P. J., McGrattan, E. R. (2007), "Business Cycle Accounting." Econometrica, Vol. 75, No. 3, pp. 781 - 836. Go to original source...
  15. Cuthbertson, K., Nitzsche, D. (2005), Quantitative Financial Economics: Stocks, Bonds and Foreign Exchange. Wiley.
  16. Eickmeier, S., Hofmann, B., Worms, A. (2006), "Macroeconomic Fluctuations and Bank Lending: Evidence for Germany and the Euro Area." Deutsche Bank Discussion Paper, Series 1. No. 34/2006. Go to original source...
  17. Fidrmuc J., Horváth R., Horváthová, E. (2010), "Corporate Interest Rates and Financial Accelerator in the Czech Republic." Emerging Markets Finance Trade, Vol. 46, No. 4, pp. 41-54. Go to original source...
  18. Gertler, M., Kiyotaki, N. (2010), "Financial Intermediation and Credit Policy in Business Cycle Analysis." In: Friedman BM and Woodford M (eds.) Handbook of Monetary Economics 3: pp. 547-599. Elsevier, 1st ed. Go to original source...
  19. Ghysels, E., Santa-Clara, P., Valkanov, R. (2005), "There Is a Risk-Return Trade-Off after All." Journal of Financial Economics, Vol. 76, No. 3, pp. 509-548. Go to original source...
  20. Hamilton, J. D. (1994), Time Series Analysis. Princeton University Press. Go to original source...
  21. Hayashi, F. (1982), "Tobin's Marginal q and Average q: A Neoclassical Interpretation." Econometrica, Vol. 50, No. 1, pp. 213-224. Go to original source...
  22. Heuvel, S. J. den (2006), "The Bank Capital Lending Channel of Monetary Policy." Society for Economic Dynamics Papers No. 512.
  23. Huizinga, J. (1993), "Inflation Uncertainty, Relative Price Uncertainty, and Investment in U.S. Manufacturing." Journal of Money, Credit and Banking, Vol. 25, No. 3, pp. 521-549. Go to original source...
  24. Kiyotaki, N., Moore J. (1997), "Credit Cycles." Journal of Political Economy, Vol. 105, No. 2, pp. 211-248. Go to original source...
  25. Krishnamurthy, A. (2010), "Amplification Mechanisms in Liquidity Crises." American Economic Journal: Macroeconomics, Vol. 2, No. 3, pp. 1-30. Go to original source...
  26. Ludvigson, S. (1999), "Consumption and Credit: A Model of Time-Varying Liquidity Constraints." Review of Economics and Statistics, Vol. 81, No. 3, pp. 434-447. Go to original source...
  27. Lutkepohl, H. (2005), New Introduction to Multiple Time Series Analysis. Springer. Go to original source...
  28. Matsuyama, K. (2007), "Credit Traps and Credit Cycles." American Economic Review, Vol. 97, No. 1, pp. 503-516. Go to original source...
  29. Moody A., Taylor M. P. (2003), "The High-Yield Spread as a Predictor of Real Economic Activity: Evidence of a Financial Accelerator for the United States." IMF Staff Papers 50: pp. 373-402.
  30. Pellényi, G. (2012), "The Sectoral Effects of Monetary Policy in Hungary: A Structural Factor Analysis." MNB Working Papers 2012/1.
  31. Pindyck, R. S. (1988), "Irreversible Investment, Capacity Choice and the Value of the Firm." American Economic Review, Vol. 78, No. 5, pp. 969-985.
  32. Ryšánek, J., Tonner, J., Vašíček, O. (2011), "Monetary Policy Implications of Financial Frictions in the Czech Republic." Czech National Bank Working Paper No. 12/2011.
  33. Vermeulen P. (2000), "Business Fixed Investment: Evidence of a Financial Accelerator in Europe." ECB Working Paper No. 37. Go to original source...

This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.