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Financial and economic stability as ‘two sides of a coin’

Author

Listed:
  • Muhammad Ali Nasir
  • Mushtaq Ahmad
  • Ferhan Ahmad
  • Junjie Wu

Abstract

Purpose - – The purpose of this paper is to provide a different context for considering issues of financial stability and instability, with reference to economic growth and price stability in particular. Design/methodology/approach - – This paper pursued an empirical exploration of six pillars of financial stability, based on a data set for the UK extending from 1985 (Q1) to 2008 (Q2), through the construction of a vector error correction model, including an impulse response function analysis. Findings - – The findings show a strong association between the financial and economic stability even in a non-crisis regime. This includes, for example, a strong association exists between the stock market and the real economy; exchange rate appreciation may not provide for long-term real economic growth; inflation does not contribute to real economic growth, both the sensitivity of the economy to yields and a significant lag in transitional effects from financial markets to the real sector; a positive role of credit creation within a non-crisis regime; exchange rate appreciation affects purchasing power; and potential points of linkage between sovereign debt activity and general price levels. Research limitations/implications - – The findings should be considered in the context of a concept of the economy as fundamentally dynamic and subject to complex cumulative processes. Practical implications - – The findings indicate there is a role for state oversight and intervention within a non-crisis regime based on the complexity of possible interactions that may undermine financial and price stability, with consequences for their association with economic growth. Originality/value - – The study provides a new perspective for considering issues of financial stability and instability.

Suggested Citation

  • Muhammad Ali Nasir & Mushtaq Ahmad & Ferhan Ahmad & Junjie Wu, 2015. "Financial and economic stability as ‘two sides of a coin’," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 7(4), pages 327-353, November.
  • Handle: RePEc:eme:jfeppp:v:7:y:2015:i:4:p:327-353
    DOI: 10.1108/JFEP-01-2015-0006
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    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Duc Huynh, Toan Luu & Burggraf, Tobias & Nasir, Muhammad Ali, 2020. "Financialisation of natural resources & instability caused by risk transfer in commodity markets," Resources Policy, Elsevier, vol. 66(C).
    2. Huynh, Toan Luu Duc & Nasir, Muhammad Ali & Nguyen, Sang Phu & Duong, Duy, 2020. "An assessment of contagion risks in the banking system using non-parametric and Copula approaches," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 105-116.
    3. Shahbaz, Muhammad & Nasir, Muhammad Ali & Hille, Erik & Mahalik, Mantu Kumar, 2020. "UK's net-zero carbon emissions target: Investigating the potential role of economic growth, financial development, and R&D expenditures based on historical data (1870–2017)," Technological Forecasting and Social Change, Elsevier, vol. 161(C).
    4. Shahbaz, Muhammad & Nasir, Muhammad Ali & Roubaud, David, 2018. "Environmental degradation in France: The effects of FDI, financial development, and energy innovations," Energy Economics, Elsevier, vol. 74(C), pages 843-857.
    5. Redmond, Trumel & Nasir, Muhammad Ali, 2020. "Role of natural resource abundance, international trade and financial development in the economic development of selected countries," Resources Policy, Elsevier, vol. 66(C).
    6. Muhammad Ali Nasir & Min Du, 2018. "Integration of Financial Markets in Post Global Financial Crises and Implications for British Financial Sector: Analysis Based on A Panel VAR Model," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(2), pages 363-388, June.
    7. Muhammad Ali Nasir & Alaa M. Soliman & Muhammad Shahbaz, 2021. "Operational aspect of the policy coordination for financial stability: role of Jeffreys–Lindley’s paradox in operations research," Annals of Operations Research, Springer, vol. 306(1), pages 57-81, November.
    8. Pham, Thu Anh Thi & Nguyen, Thong Trung & Nasir, Muhammad Ali & Duc Huynh, Toan Luu, 2023. "Exchange rate pass-through: A comparative analysis of inflation targeting & non-targeting ASEAN-5 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 158-167.
    9. Bhabani Sankar Rout & Nupur Moni Das & K. Chandrasekhara Rao, 2019. "Volatility Spillover Effect in Commodity Derivatives Market: Empirical Evidence Through Generalized Impulse Response Function," Vision, , vol. 23(4), pages 374-396, December.
    10. Nawaz, Kishwar & Lahiani, Amine & Roubaud, David, 2019. "Natural resources as blessings and finance-growth nexus: A bootstrap ARDL approach in an emerging economy," Resources Policy, Elsevier, vol. 60(C), pages 277-287.
    11. Muhammad Shahbaz & Muhammad A. Nasir & Amine Lahiani, 2022. "Role of financial development in economic growth in the light of asymmetric effects and financial efficiency," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 361-383, January.
    12. Muhammad Ali Nasir & Muhammad Shahbaz & Trinh Thi Mai & Moade Shubita, 2021. "Development of Vietnamese stock market: Influence of domestic macroeconomic environment and regional markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1435-1458, January.
    13. Titus A. Ojeyinka & Tolulope T. Osinubi, 2022. "The moderating role of financial development in the globalization-sustainable development nexus in some selected African Countries," Economic Change and Restructuring, Springer, vol. 55(4), pages 2051-2080, November.

    More about this item

    Keywords

    Financial markets; Economic development: financial markets; Financial markets and the macroeconomy; Financial economics; Foreign exchange; B26; E44; G01;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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