Abstract
This paper analyses the implications of macroeconomic policy interactions for financial stability, proxied by financial assets prices (equity and bonds). The empirical analysis applies a Vector Autoregressive (VAR) model and findings suggest that an accommodating monetary, and disciplined fiscal, stance has
been optimal for both stock and bond markets. There is also ample evidence of interdependence between policies, as an expansionary fiscal policy could persuade the monetary authorities to adopt an accommodating stance, whereas a contractionary monetary policy leads fiscal policy towards consolidation. The interrelation between monetary and fiscal policy necessitates coordination between them for the sake of financial stability.
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Knowledge will forever govern ignorance, and a people who mean to be their own governors must arm themselves with the power which knowledge gives.
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