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The importance of the financial system for the real economy
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.
Swedish National Debt Office, Stockholm, Sweden.
Ministry of Finance, Stockholm, Sweden.
2016 (English)In: Empirical Economics, ISSN 0377-7332, E-ISSN 1435-8921Article in journal (Refereed) Published
Abstract [en]

This paper first describes financial variables that have been constructed to correspond to various channels in the transmission mechanism. Next, a Bayesian VAR model for the macroeconomy, with priors on the steady states, is augmented with these financial variables and estimated using Swedish data for 1989–2015. The results support three conclusions. First, the financial system is important and the strength of the results is dependent on identification, with the financial variables accounting for 10–25 % of the forecast error variance of Swedish GDP growth. Second, the suggested model produces an earlier signal regarding the probability of recession, compared to a model without financial variables. Third, the model’s forecasts for the deep downturn in 2008 and 2009, conditional on the development of the financial variables, outperform a macro-model that lacks financial variables. Furthermore, this improvement in modelling Swedish GDP growth during the financial crisis does not come at the expense of unconditional predictive power. Taken together, the results suggest that the proposed model presents an accessible possibility to analyse the macro-financial linkages and the GDP developments, especially during a financial crisis.

Place, publisher, year, edition, pages
2016.
Keyword [en]
Transmission channels, Financial indicators, Macroeconomy, Business cycle, Credit cycle, Bayesian VAR
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:uu:diva-306161DOI: 10.1007/s00181-016-1175-4OAI: oai:DiVA.org:uu-306161DiVA: diva2:1039861
Available from: 2016-10-25 Created: 2016-10-25 Last updated: 2016-10-26Bibliographically approved

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Ankargren, Sebastian
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