Abstract
Dynamic macroeconomic models (both VAR and DSGE) currently play a very significant role in macroeconomic modelling. But these types of models rarely take into account the impact of financial markets on the behaviour of economies, they are rather more focused on the monetary transmission mechanism. The financial crisis of 2007-2008 highlighted the impact of the financial market on the macroeconomy. In this context macroprudential policy and financial stability analysis has gained a stronger meaning. The main aim of the paper is to estimate a model that simultaneously explains the dynamics of macroeconomic and financial variables and to assess whether the identified relationships are stable over time. Therefore, based on the estimated empirical structural vector autoregression model explaining the interactions between the real economy, the financial system and monetary policy in Poland, financial and macroeconomic shocks were identified. It was shown that the impulse reaction functions changed after the financial crisis. On the basis of Markov‑ Switching vector autoregression model probabilities of transitions between states of the economy and the regime-dependent impulse reaction functions were estimated.
Highlights
The financial market is strongly connected with the production sector, the international environment and monetary policy
5 Results for the MS-vector autoregression model (VAR) model without restrictions on the parameters do not confirm the existence of structural changes in the system
This paper presents the conclusions from the estimates of VAR and the Markov ‐Switching VAR model for the Polish economy
Summary
The financial market is strongly connected with the production sector, the international environment and monetary policy. In case of financial crisis, financial sector losses can be transferred to the real economy. After the global financial crisis that began with the collapse of Lehman Brothers Holdings Inc. and the failure of subprime loans in 2008 a growing role of research on the transmission of the shocks from the financial sector and the analysis of macroprudential policy tools is observed in the literature (see e.g.: Hollo, Kremer, & Lo Duca, 2012; Kremer, 2015; Popp & Zhang, 2016; Tamási & Világi, 2011). Analysis of the links between the monetary policy, the financial and banking sector and the real economy is made within a vector autoregression model (VAR) framework
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