Financial development shocks and contemporaneous feedback effect on key macroeconomic indicators: A post Keynesian time series analysis

In this paper we take into account the role of the banking system, credit and stock market in stimulating aggregate demand in post Keynesian tradition. According to the results of impulse response analysis; it appears all three financial development indicators contributed as expected in improving macroeconomic performance of South Korean economy. Stock market capitalisation and domestic credit availability are strongly responsible for stimulation of investment, saving and productivity Growth in Hong Kong. The UK financial system seems vulnerable to future shocks, whether by shocks in the credit markets or stock markets.

► We tested the impact of financial development shocks on macroeconomics indicators. ► We integrated this relationship into post-Keynesian model with system of equations. ► SVAR is estimated with short run restrictions derived from Post-Keynesian theory. ► Stock market contribution to overall growth exceeds that of other indicators.