Empir Econ (2018) 54:395–423
Fiscal developments and ﬁnancial stress: a threshold
· Jaromír Baxa
· Michal Slavík
Received: 16 December 2014 / Accepted: 15 November 2016 / Published online: 4 January 2017
© Springer-Verlag Berlin Heidelberg 2017
Abstract We use a threshold VAR analysis to study the linkages between changes in
the debt ratio, economic activity and ﬁnancial stress within different ﬁnancial regimes.
We use quarterly data for the US, the UK, Germany and Italy, for the period 1980:4–
2014:1, encompassing macro, ﬁscal and ﬁnancial variables, and use nonlinear impulse
responses allowing for endogenous regime-switches in response to structural shocks.
We thank two anonymous referees and Krenar Avdulaj, Petr Jakubík, Ad van Riet, Miloslav Vošvrda, and
seminar participants at the ECB, at Institute of Information Theory and Automation (Academy of
Sciences of the Czech Republic) for helpful comments, and Raffaela Giordano for help with Italian data.
The opinions expressed herein are those of the authors and do not necessarily reﬂect those of the ECB or
UECE is supported by the Fundacão para a Ciência e a Tecnologia (Portuguese Foundation for Science
Jaromír Baxa acknowledges the support by the Grant Agency of the Czech Republic, Grant No.
ISEG/ULisboa–Universidade de Lisboa, Department of Economics; UECE – Research Unit on
Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal
Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague,
Smetanovo nábˇreží 6, 111 01 Prague 1, Czech Republic
Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic,
Pod Vodárenskou vˇeží 4, 182 08 Prague 8, Czech Republic
European Central Bank, Sonnemannstrasse 22, 60314 Frankfurt am Main, Germany