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

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Pošta, V., & Pikhart, Z. (2015). Financial Risk and Real Variables: Evidence Based on a SVAR Analysis of the Czech Economy. Prague Economic Papers, 24(5), 516-537. doi: 10.18267/j.pep.513
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